10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Check One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

o TRANSITION 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 of incorporation or organization)	(I.R.S. Employer Identification No.)
5900 Golden Hills Drive MINNEAPOLIS, MINNESOTA	55416
(Address of principal executive offices)	(Zip Code)

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

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. Yes x   No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o   No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer” or “large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o   No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. At October 31, 2010, there were 6,882,549 shares of the registrant’s Common Stock, no par value, issued and outstanding.

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS
CYBEROPTICS CORPORATION

(In thousands except share information)	(Unaudited) September 30, 2010			(Audited) December 31, 2009
ASSETS
Cash and cash equivalents	$	7,070		$	4,177
Marketable securities		7,281			14,557
Accounts receivable, less allowance for doubtful accounts of $1,055 at September 30,
2010 and $1,049 at December 31, 2009		12,993			8,389
Inventories		14,761			7,745
Income tax refunds receivable		—			2,499
Other current assets		1,602			1,130
Deferred tax assets		2,040			2,040
Total current assets		45,747			40,537
Marketable securities		5,398			3,145
Equipment and leasehold improvements, net		2,121			1,921
Intangible and other assets, net		469			642
Goodwill		569			569
Other assets		170			163
Deferred tax assets		4,112			4,160
Total assets	$	58,586		$	51,137
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	7,030		$	3,652
Advance customer payments		850			657
Accrued expenses		2,928			1,880
Total current liabilities		10,808			6,189
Other liabilities		575			546
Total liabilities		11,383			6,735
Commitments and contingencies		—			—
Stockholders’ equity:
Preferred stock, no par value, 5,000,000 shares authorized, none outstanding		—			—
Common stock, no par value, 25,000,000 shares authorized, 6,882,549 shares issued and outstanding at September 30, 2010 and 6,828,616 at December 31, 2009		30,231			29,732
Accumulated other comprehensive loss		(630	)		(768	)
Retained earnings		17,602			15,438
Total stockholders’ equity		47,203			44,402
Total liabilities and stockholders’ equity	$	58,586		$	51,137

SEE THE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
CYBEROPTICS CORPORATION
(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
(In thousands, except per share amounts)	2010		2009			2010		2009
Revenues	$	14,145	$	8,550		$	42,985	$	18,091
Cost of revenues		7,482		5,613			24,410		12,178
Gross margin		6,663		2,937			18,575		5,913
Research and development expenses		1,914		1,813			5,398		5,620
Selling, general and administrative expenses		3,530		2,835			10,421		9,469
Severance		—		(32	)		—		363
Amortization of intangibles		45		45			136		136
Income (loss) from operations		1,174		(1,724	)		2,620		(9,675	)
Interest income and other		61		92			151		450
Income (loss) before income taxes		1,235		(1,632	)		2,771		(9,225	)
Income tax provision (benefit)		287		(791	)		607		(4,028	)
Net income (loss)	$	948	$	(841	)	$	2,164	$	(5,197	)
Net income (loss) per share – Basic		$0.14		($0.12	)		$0.32		($0.77	)
Net income (loss) per share – Diluted		$0.14		($0.12	)		$0.31		($0.77	)
Weighted average shares outstanding – Basic		6,871		6,801			6,853		6,785
Weighted average shares outstanding – Diluted		6,919		6,801			6,901		6,785

SEE THE ACCOMPANYING NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
CYBEROPTICS CORPORATION
(Unaudited)

	Nine Months Ended September 30,
(In thousands)	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	2,164		$	(5,197	)
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Depreciation and amortization		1,651			1,845
Provision for doubtful accounts		24			804
Deferred taxes		99			(1,807	)
Foreign currency transaction (gains) losses		(35	)		(116	)
Stock compensation costs		288			359
Realized gains on available for sale marketable securities		—			(26	)
Changes in operating assets and liabilities:
Accounts receivable		(4,628	)		(992	)
Inventories		(7,193	)		658
Income tax refunds receivable		2,499			(435	)
Other current assets		(282	)		(278	)
Accounts payable		3,248			696
Advance customer payments		193			(4	)
Accrued expenses		1,058			(1,688	)
Net cash used by operating activities		(914	)		(6,181	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of available for sale marketable securities		12,989			10,391
Proceeds from sales of available for sale marketable securities		3,241			2,570
Purchases of available for sale marketable securities		(11,505	)		(6,142	)
Additions to equipment and leasehold improvements		(996	)		(420	)
Additions to patents		(134	)		(210	)
Net cash provided by investing activities		3,595			6,189
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options		36			46
Proceeds from issuance of common stock under employee stock purchase plan		175			118
Net cash provided by financing activities		211			164
Effects of exchange rate changes on cash and cash equivalents		1			22
Net increase in cash and cash equivalents		2,893			194
Cash and cash equivalents – beginning of period		4,177			4,516
Cash and cash equivalents – end of period	$	7,070		$	4,710

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NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CYBEROPTICS CORPORATION

1. INTERIM REPORTING:

The interim condensed consolidated financial statements presented herein as of September 30, 2010, and for the three and nine month periods ended September 30, 2010 and 2009, are unaudited, but in the opinion of 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 three and nine month periods ended September 30, 2010 do not necessarily indicate the results to be expected for the full year. The December 31, 2009 consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These unaudited interim condensed 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, 2009.

2. MARKETABLE SECURITIES:

Our investments in marketable securities are classified as available for sale and consist of the following:

	September 30, 2010
(In thousands)	Cost		UnrealizedGains		UnrealizedLosses			Fair Value
Short Term
U.S. government and agency obligations	$	4,680		30		—		$	4,710
Corporate debt securities and certificates of deposit		2,570		1		—			2,571
Marketable securities – short term	$	7,250		31		—		$	7,281
Long Term
U.S. government and agency obligations	$	3,374		21		—		$	3,395
Corporate debt securities and certificates of deposit		1,738		7		—			1,745
Asset backed securities		200		6		—			206
Equity securities		84		—		(32	)		52
Marketable securities – long term	$	5,396		34		(32	)	$	5,398

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	December 31, 2009
(In thousands)	Cost		Unrealized Gains		Unrealized Losses			Fair Value
Short Term
U.S. government and agency obligations	$	11,199		158		—		$	11,357
Corporate debt securities and certificates of deposit		3,180		20		—			3,200
Marketable securities – short term	$	14,379		178		—		$	14,557
Long Term
U.S. government and agency obligations	$	2,757		47		—		$	2,804
Corporate debt securities		101		—		—			101
Asset backed securities		200		10		—			210
Equity securities		84		—		(54	)		30
Marketable securities – long term	$	3,142		57		(54	)	$	3,145

Our investment in equity securities was in a $32,000 unrealized loss position at September 30, 2010 and a $54,000 unrealized loss position at December 31, 2009 due to weak economic and stock market conditions. We intend to hold this security indefinitely and expect its value to recover given improved economic and market conditions.

Our investments in marketable debt securities all have maturities of less than five years. At September 30, 2010, marketable debt securities valued at $12,075,000 were in an unrealized gain position totaling $65,000 and marketable debt securities valued at $552,000 were in an insignificant unrealized loss position totaling several hundred dollars. At December 31, 2009, marketable debt securities valued at $16,463,000 were in an unrealized gain position totaling $235,000 and marketable debt securities valued at $1,209,000 were in an insignificant unrealized loss position totaling several hundred dollars (all had been in an unrealized loss position for less than twelve months).

Net pre-tax unrealized gains for marketable securities of $33,000 at September 30, 2010 and $182,000 at December 31, 2009 were recorded as a component of accumulated other comprehensive income (loss) in stockholders’ equity. In the three months ended September 30, 2010 we received proceeds of $597,000 from the sale of marketable securities. In the nine months ended September 30, 2010 we received proceeds of $3,241,000 from the sale of marketable securities. No gain or loss was recognized on any of the sales in 2010. In the three months ended September 30, 2009 we received proceeds of $92,000 from the sale of marketable securities and recognized a gain of $2,000 from the sales. In the nine months ended September 30, 2009, we received proceeds of $2,570,000 from the sale of marketable securities and recognized a gain of $26,000 from the sale.

3. FAIR VALUE MEASUREMENTS:

We determine the fair value of our assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. We use a fair value hierarchy with three levels of inputs, of which the first two are considered observable and the last unobservable, to measure fair value: The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1). The next highest priority is based on quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in non-active markets or other observable inputs (Level 2). The lowest priority is given to unobservable inputs (Level 3).

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The following provides information regarding fair value measurements for our cash equivalents and marketable securities as of September 30, 2010 and December 31, 2009 according to the three-level fair value hierarchy:

			Fair Value Measurements at September 30, 2010 Using
(In thousands)	Balance September 30, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents	$	2,613	$	—	$	2,613	$	—
U.S. government and agency obligations		8,105		—		8,105		—
Corporate debt securities		4,316		—		4,316		—
Asset backed securities		206		—		206		—
Equity securities		52		52		—		—
Total	$	15,292	$	52	$	15,240	$	—

			Fair Value Measurements at December 31, 2009 Using
(In thousands)	Balance December 31, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents	$	2,320	$	—	$	2,320	$	—
U.S. government and agency obligations		14,161		—		14,161		—
Corporate debt securities		3,301		—		3,301		—
Asset backed securities		210		—		210		—
Equity securities		30		30		—		—
Total	$	20,022	$	30	$	19,992	$	—

During the nine months ended September 30, 2010 there were no significant transfers to or from the three level hierarchy. The carrying amounts of financial instruments such as cash equivalents, accounts receivable, other assets, accounts payable, accrued expenses and other current liabilities approximate the related fair values due to the short term maturities of these instruments. Non-financial assets such as equipment and leasehold improvements, goodwill and intangible assets are subject to nonrecurring fair value measurements if they are deemed impaired. The impairment models used for these assets are described in more detail in our Annual Report on Form 10-K for the year ended December 31, 2009. Our foreign currency swap agreements are structured to mature on the last day of each quarter. The fair value associated with these agreements is inconsequential and represents a Level 2 measurement.

We consider all highly liquid investments purchased with an original maturity of 90 days or less to be cash equivalents. At September 30, 2010, cash and cash equivalents consist of funds maintained in demand deposit accounts, money market accounts, corporate debt instruments and U.S. government backed obligations. Some cash and cash equivalent balances may exceed federally insured limits.

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4. ACCOUNTING FOR STOCK-BASED COMPENSATION:

All equity-based payments to employees, including grants of employee stock options, are recognized as an expense in our consolidated statement of operations based on the grant date fair value of the award. We utilize the straight-line method of expense recognition over the award’s service period for our graded vesting options. The fair value of stock options granted has been determined using the Black-Scholes model. The compensation expense recognized for all equity based awards is net of estimated forfeitures, which are based on historical data. We have classified equity based compensation within our statement of operations in the same manner as our cash based employee compensation costs.

The fair value of the options granted to our employees was estimated on the date of grant using the Black-Scholes model. Stock options for 47,000 shares of stock and restricted stock units for 350 shares of stock were granted in the nine months ended September 30, 2010 to certain key employees. We issued 4,000 shares of common stock under our stock grant plan for non-employee directors upon their re-election to the board of directors in May 2010. These stock options, restricted stock units and share grants were valued at their fair market value on the date of grant, with recognition of compensation expense over the corresponding vesting period.

Equity based compensation expense in the three months ended September 30, 2010 totaled $93,000 and includes $50,000 for stock option awards, $24,000 for our employee stock purchase plan and $19,000 for unvested restricted stock units. Equity based compensation expense in the nine months ended September 30, 2010 totaled $288,000 and includes $133,000 for stock option awards, $60,000 for our employee stock purchase plan, $57,000 for unvested restricted stock units and $38,000 for shares issued to our non-employee directors upon their re-election to our board in May 2010.

Equity based compensation expense in the three months ended September 30, 2009 totaled $97,000 and includes $59,000 for stock option awards, $17,000 for our employee stock purchase plan and $21,000 for unvested restricted stock units. Equity based compensation expense in the nine months ended September 30, 2009 totaled $359,000 and includes $200,000 for stock option awards, $44,000 for our employee stock purchase plan, $51,000 for unvested restricted stock units, $14,000 for shares issued to our non-employee directors and $50,000 for shares issued to an officer under an incentive compensation arrangement.

At September 30, 2010, the total unrecognized compensation cost related to non-vested equity based compensation arrangements was $632,000 and the related weighted average period over which it is expected to be recognized is 1.96 years.

The Black Scholes valuation model incorporates ranges of assumptions that are disclosed in the table below. The risk-free interest rate is based on the United States Treasury yield curve at the time of grant with a remaining term equal to the expected life of the awards. We estimated the expected term for our graded vesting options, representing the length of time in years that the options are expected to be outstanding, using the simplified method. We continued to use the simplified method in 2010 because our historical exercise experience is not expected to be representative of exercise patterns in the future, due to our recent restructuring activities. Expected volatility was computed based on historical fluctuations in the daily price of our common stock.

For stock options granted during the nine months ending September 30, 2010, we utilized the fair value of our common stock on the date of grant and employed the following key assumptions in computing fair value using the Black-Scholes option-pricing model:

Black Scholes Assumptions:	Nine Months Ending September 30, 2010
Risk-free interest rates		2.47% - 2.75%
Expected life in years		4.75
Expected volatility		50% - 52%
Expected dividends		None
Weighted average fair value on grant date		$4.80

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Stock Options

We have three stock incentive plans that are administered under the supervision of the Compensation Committee of the Board of Directors. There are 825,709 shares of common stock reserved in the aggregate for issuance of options and other stock based benefits under these plans, including restricted stock units and share grants to employees, officers, non-employee directors and others. Reserved shares underlying canceled options are available for future grant under our active plans. Options are granted at an option price per share equal to or greater than the market value on the date of grant. Generally, options granted to employees vest over a four-year period and expire five, seven, or ten years after the date of grant. Stock options for 47,000 shares of stock were granted during the nine months ended September 30, 2010. As of September 30, 2010, there were 337,445 shares of common stock available under these plans for future issuance to employees, officers and others. There are no options available under these plans for future issuance to non-employee directors. In addition, there are 50,000 shares reserved and included in the plan summaries below that are not part of the three stock incentive plans.

The following is a summary of stock option activity during the nine months ended September 30, 2010:

	Options Outstanding			Weighted – Average Exercise Price Per Share
Outstanding, December 31, 2009		549,095		$	10.04
Granted		47,000			10.70
Exercised		(66,500	)		5.97
Expired		(14,500	)		23.77
Forfeited		—			—
Outstanding, September 30, 2010		515,095		$	10.24
Exercisable, September 30, 2010		342,578		$	11.68

The intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price. The weighted average remaining contractual term and aggregate intrinsic value for all options outstanding at September 30, 2010 was 3.83 years and $604,000. The weighted average remaining contractual term and aggregate intrinsic value of options that were exercisable at September 30, 2010 was 2.98 years and $160,000. The aggregate intrinsic value of stock options that were exercised in the nine months ended September 30, 2010 was $113,000. During the nine months ended September 30, 2010, we received total proceeds of $36,000 from the exercise of stock options. The excess tax benefit associated with the exercise of stock options in the three and nine months ended September 30, 2010 was inconsequential.

Restricted Stock Units

Our 1998 Stock Incentive Plan also permits our Compensation Committee to grant other stock-based benefits, including restricted stock units. Restricted stock units are valued at a price equal to the fair market value of our common stock on the date of grant, vest over a four year period and entitle the holders to one share of our common stock for each restricted stock unit. The aggregate fair value of outstanding restricted stock units as of September 30, 2010 was $211,000.

A summary of activity in non-vested restricted stock units for the nine months ended September 30, 2010 is as follows:

Non vested restricted stock units	Shares		Weighted – Average Grant Date Fair Value
Non vested at December 31, 2009		22,819	$	6.79
Granted		350		7.71
Vested		—		—
Forfeited		—		—
Non vested at September 30, 2010		23,169	$	6.80

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Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan available to eligible U.S. employees. Under terms of the plan, eligible employees may designate from 1% to 10% of their compensation to be withheld through payroll deductions, up to a maximum of $6,500 in each plan year, for the purchase of common stock at 85% of the lower of the market price on the first or last day of the offering period. There were 30,658 shares issued under this plan in the nine months ended September 30, 2010 and 20,810 shares issued in the nine months ended September 30, 2009. As of September 30, 2010, 61,344 shares remain available for future issuance under this plan.

Stock Grant Plan for Non-Employee Directors

Our stock grant plan for non-employee directors provides for automatic grants of 1,000 shares of our common stock to each of our non-employee directors upon their re-election to the board of directors. The plan provides for a total of 30,000 shares of our common stock for issuance to directors and will expire on May 19, 2018. We issued a total of 4,000 shares of common stock under this plan in connection with our annual meeting in May 2010, resulting in $38,000 of stock compensation expense in the nine months ended September 30, 2010. There are presently 20,000 shares of common stock reserved in the aggregate for future issuance under this plan.

5. INVENTORIES AND WARRANTIES:

Inventories consist of the following:

(In thousands)	September 30, 2010		December 31, 2009
Raw materials and purchased parts	$	6,882	$	3,312
Work in process		1,702		637
Finished goods		6,177		3,796
Total inventories	$	14,761	$	7,745

Warranty costs:

We provide for the estimated cost of product warranties at the time revenue is recognized, generally for one year. 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. Our warranty liability is included as a component of accrued expenses. At the end of each reporting period we revise our estimated warranty liability based on these factors. A reconciliation of the changes in our estimated warranty liability is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2010			2009			2010			2009
Balance at beginning of period	$	607		$	509		$	488		$	823
Accrual for warranties		370			115			875			313
Settlements made during the period		(183	)		(225	)		(569	)		(737	)
Balance at end of period	$	794		$	399		$	794		$	399

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Extended warranty:

Our extended warranty liability is included as a component of advance customer payments. A reconciliation of the changes in our extended warranty liability is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2010			2009			2010			2009
Balance at beginning of period	$	875		$	639		$	636		$	605
Revenue deferrals		80			163			546			369
Amortization of deferred revenue		(105	)		(124	)		(332	)		(296	)
Balance at end of period	$	850		$	678		$	850		$	678

6. INTANGIBLE ASSETS:

Intangible assets consist of the following:

	As of September 30, 2010							As of December 31, 2009
(In thousands)	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Developed technology	$	7,775	$	(7,621	)	$	154	$	7,775	$	(7,485	)	$	290
Patents and trademarks		2,814		(2,499	)		315		2,681		(2,329	)		352
Total	$	10,589	$	(10,120	)	$	469	$	10,456	$	(9,814	)	$	642

Amortization expense for the three and nine month periods ended September 30, 2010 and 2009 is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2010		2009		2010		2009
Developed technology	$	45	$	45	$	136	$	136
Patents and trademarks		56		192		170		348
Total	$	101	$	237	$	306	$	484

Intangible and other long lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment loss would be recognized when future undiscounted cash flows expected to result from use of the asset and eventual disposition are less than the carrying amount.

Amortization of patents and trademarks has been classified as research and development expense in the accompanying statement of operations. Estimated aggregate amortization expense based on current intangibles for the next four years is expected to be as follows: $101,000 for the remainder of 2010 and $293,000 in 2011, $57,000 in 2012, and $18,000 in 2013.

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7. BUSINESS SEGMENTS AND SIGNIFICANT CUSTOMERS:

Our electronic assembly segment is the design, manufacture and sale of optical process control sensors and inspection systems for the electronic assembly equipment market. The semiconductor segment is the design, manufacture and sale of optical and other process control sensors and related equipment for the semiconductor capital equipment market. Information regarding our segments is as follows:

	Three Months Ended September 30,					Nine Months Ended September 30,
(In thousands)	2010		2009			2010		2009
Revenue:
Electronic Assembly
OEM Sensors	$	6,896	$	2,599		$	18,500	$	5,243
SMT Systems		5,461		5,167			20,222		10,732
Total Electronic Assembly		12,357		7,766			38,722		15,975
Semiconductor		1,788		784			4,263		2,116
Total	$	14,145	$	8,550		$	42,985	$	18,091
Income (loss) from operations:
Electronic Assembly	$	562	$	(1,599	)	$	1,514	$	(8,976	)
Semiconductor		612		(125	)		1,106		(699	)
Total income (loss) from operations		1,174		(1,724	)		2,620		(9,675	)
Interest income and other		61		92			151		450
Income (loss) before taxes	$	1,235	$	(1,632	)	$	2,771	$	(9,225	)
Depreciation and amortization:
Electronic Assembly	$	559	$	536		$	1,479	$	1,554
Semiconductor		56		148			172		291
Total	$	615	$	684		$	1,651	$	1,845

Export sales were 88% of revenue in the three months ended September 30, 2010 and 86% of revenue in the nine months ended September 30, 2010. Export sales were 84% of revenue in the three months ended September 30, 2009 and 79% of revenue in the nine months ended September 30, 2009. Virtually 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 Ended September 30,				Nine Months Ended September 30,
(In thousands)	2010		2009		2010		2009
Americas	$	469	$	89	$	751	$	639
Europe		4,401		2,564		11,071		6,131
Asia		7,312		4,220		24,763		6,066
Other		264		305		350		1,404
Total export sales	$	12,446	$	7,178	$	36,935	$	14,240

Historically, we have been dependent upon two electronic assembly customers, Assembleon and Juki, for a significant portion of our revenue. For the nine months ended September 30, 2010, sales to Juki accounted for 20% of our total revenue and sales to Assembleon accounted for 13% of our total revenue.

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8. NET INCOME (LOSS) PER SHARE:

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Net income (loss) per diluted share is computed by dividing net income (loss) by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares consist of common shares to be issued upon exercise of stock options, restricted stock units and from participation in our employee stock purchase plan, as calculated using the treasury stock method. All potentially dilutive common equivalent shares are excluded from the calculation of net loss per diluted share due to their anti-dilutive effect. As a result, no common equivalent shares were included in the calculations of net loss per diluted share for the three or nine months ended September 30, 2009. The components of net income (loss) per basic and diluted share are as follows:

(In thousands except per share amounts)	Net income (loss)			Weighted Average Shares Outstanding		Per Share Amount
Three Months Ended September 30, 2010:
Basic	$	948			6,871	$	0.14
Dilutive effect of common equivalent shares		—			48		—
Dilutive	$	948			6,919	$	0.14
(In thousands except per share amounts)	Net income (loss)			Weighted Average Shares Outstanding		Per Share Amount
Three Months Ended September 30, 2009:
Basic	$	(841	)		6,801	$	(0.12	)
Dilutive effect of common equivalent shares		—			—		—
Dilutive	$	(841	)		6,801	$	(0.12	)
(In thousands except per share amounts)	Net income (loss)			Weighted Average Shares Outstanding		Per Share Amount
Nine Months Ended September 30, 2010:
Basic	$	2,164			6,853	$	0.32
Dilutive effect of common equivalent shares		—			48		(0.01	)
Dilutive	$	2,164			6,901	$	0.31
(In thousands except per share amounts)	Net income (loss)			Weighted Average Shares Outstanding		Per Share Amount
Nine Months Ended September 30, 2009:
Basic	$	(5,197	)		6,785	$	(0.77	)
Dilutive effect of common equivalent shares		—			—		—
Dilutive	$	(5,197	)		6,785	$	(0.77	)

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The calculation of diluted net income (loss) per common share excludes 306,000 potentially dilutive shares for the three months ended September 30, 2010, 617,000 potentially dilutive shares for the three months ended September 30, 2009, 300,000 potentially dilutive shares for the nine months ended September 30, 2010 and 698,000 potentially dilutive shares for the nine months ended September 30, 2009, because their effect would be anti-dilutive.

9. COMPREHENSIVE INCOME (LOSS):

Components of comprehensive income (loss) include net income (loss), foreign-currency translation adjustments, unrealized gains and losses on available-for-sale securities and reclassification adjustments. Total comprehensive income (loss) amounted to $1,117,000 for the three months ended September 30, 2010 and $(779,000) for the three months ended September 30, 2009. Total comprehensive income (loss) amounted to $2,302,000 for the nine months ended September 30, 2010 and $(5,438,000) for the nine months ended September 30, 2009.

At December 31, 2009 and September 30, 2010 components of accumulated other comprehensive loss is as follows:

(In thousands)	Foreign Currency Translation			Unrealized Gains (Losses) on Securities			Accumulated Other Comprehensive Loss
Balance December 31, 2009	$	(887	)	$	119		$	(768	)
Unrealized losses on securities, net of tax of $51		—			(98	)		(98	)
Translation adjustments		236			—			236
Balance September 30, 2010	$	(651	)	$	21		$	(630	)

10. INCOME TAXES:

We recorded a provision for income tax expense in the nine months ended September 30, 2010 at an effective tax rate of 22.0%, compared to an income tax benefit in the nine months ended September 30, 2009 at an effective tax rate of 43.7%. Our recorded income tax benefit for the three and nine months ended September 30, 2009 includes a $223,000 discrete benefit from reversal of a portion of our reserve for income taxes resulting from the closing of a domestic statute of limitations. Our recorded income tax benefit for the nine months ended September 30, 2009 also includes a $547,000 discrete benefit from reversal of a portion of our reserve for income taxes resulting from settlement of Internal Revenue Service audits of our 2006 and 2007 federal income tax returns. These discrete benefits resulted in a higher effective tax rate due to our pre-tax loss in 2009. Discrete items impacting the effective tax rate in the nine months ended September 30, 2010 were inconsequential. Other items impacting the effective tax rate for 2010, compared to 2009, include the anticipated benefit from the domestic manufacturer’s production incentive, additional tax expense in foreign tax jurisdictions with lower tax rates than the U.S federal statutory rate and recognition of the benefit from the revised Minnesota state R&D tax credit that was signed into law during the second quarter of 2010.

We currently have significant deferred tax assets as a result of temporary differences between taxable income on our tax returns and U.S. GAAP income, research and development tax credit carry forwards and foreign net operating loss carry forwards. A deferred tax asset generally represents future tax benefits to be received when temporary differences previously reported in our financial statements become deductible for income tax purposes, or when net operating loss carry forwards or credits are applied against future taxable income, or when tax credit carry forwards are utilized on our tax returns. We assess the realizability of our deferred tax assets and the need for a valuation allowance based on the guidance provided in current financial accounting standards.

Significant judgment is required in determining the realizability of our deferred tax assets. The assessment of whether valuation allowances are required considers, among other matters, the nature, frequency and severity of any current and cumulative losses, forecasts of future profitability, the duration of statutory carry forward periods, our experience with loss carry forwards not expiring unused and tax planning alternatives.

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In analyzing the need for valuation allowances, we first considered our history of cumulative losses for U.S. income tax purposes over the past three years and also gave significant consideration to our results for U.S. income tax purposes over the past five years, as the economic cycles in our industry have tended to average five years in length (from peak to trough). We also considered our forecasts of future profitability, the duration of statutory carry forward periods and tax planning alternatives. Finally, we considered the length and severity of the recent global economic crisis, the impact that it had on our operating results and our expectation for rebound given recent signs of recovery in the global economy and more specifically in our markets. After considering all of these factors, and after considering other significant positive evidence, we concluded that a valuation allowance with respect to substantially all of our U.S. based deferred tax assets was not required at September 30, 2010.

Our results in both 2008 and 2009 were negatively impacted by the recent global economic slowdown, and we incurred a loss in the United States in both 2008 and 2009, where most of our net deferred tax assets are recorded. Therefore, achievement of profitability in the United States will be a significant factor in determining our continuing ability to carry these deferred tax assets without recording a valuation allowance. If future results from our operations are less than projected, a valuation allowance may be required against virtually all of our deferred tax assets, which could have a material impact on our results of operations in the period in which it is recorded.

Deferred tax assets at September 30, 2010, include net operating loss carry forwards incurred in the UK by CyberOptics Ltd., which was acquired in 1999. The utilization of these net operating loss carry forwards is dependent on CyberOptics Ltd.’s ability to generate sufficient UK taxable income during the carry forward period.

11. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:

We enter into foreign currency swap agreements to hedge short term inter-company financing transactions with our subsidiaries in the United Kingdom and Singapore. These currency swap agreements are structured to mature near the last day of each quarter, and are designated as cash flow hedges. At September 30, 2010, we had two open swap agreements for £200,000 British Pounds Sterling and $1,000,000 Singapore dollars that were purchased on September 30, 2010, the fair value of which was inconsequential. Gains and losses from foreign currency transactions and foreign currency swap agreements are recognized in interest income and other in our statement of operations.

In the three months ended September 30, 2010, we recognized net gains (losses) from settlement of foreign currency swap agreements of $(63,000) in addition to foreign currency transaction gains (losses) on the underlying inter-company balances of $90,000. In the nine months ended September 30, 2010, we recognized net gains (losses) from settlement of foreign currency swap agreements of $(32,500) that offset foreign currency transactions gains (losses) on the underlying inter-company balances of $35,000.

In the three months ended September 30, 2009, we recognized net gains (losses) from settlement of foreign currency swap agreements of $(28,000) that offset foreign currency transaction gains (losses) on the underlying inter-company balances of $(29,000). In the nine months ended September 30, 2009, we recognized net gains (losses) from settlement of foreign currency swap agreements of $(211,000) that offset foreign currency transactions gains (losses) on the underlying inter-company balances of $116,000.

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.

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12. CONTINGENCIES:

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

In the normal course of business to facilitate sales of our products and services, we at times indemnify other parties, including customers, with respect to certain matters. In these instances, we have agreed to hold the other parties harmless against losses arising out of intellectual property infringement or other types of claims. These agreements may limit the time within which an indemnification claim can be made, and almost always limit the amount of the claim. It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made, if any, under these agreements have not had a material impact on our operating results, financial position or cash flows.

13. SEVERANCE COSTS:

We started to incur severance costs in February 2008 in connection with our decision to move a significant portion of development and manufacturing for our systems products to Singapore. The transition of systems-related product development was substantially complete by the end of the fourth quarter of 2008, and the transition of systems-related manufacturing was substantially complete by the end of the first quarter of 2009. Severance costs incurred in connection with the February 2008 decision to move our systems related product development and manufacturing to Singapore totaled $48,000 in the nine months ended September 30, 2009. Our results for the three months ended September 30, 2009 include a $32,000 benefit from the reversal of a portion of a prior severance accrual.

In February 2009, we further reduced our workforce by 24 positions in response to the weakening global economy, our transition to Singapore and our decision to consolidate manufacturing for our semiconductor products in our Minneapolis facility. Severance costs incurred in connection with the February 2009 workforce reduction totaled $315,000 in the nine months ended September 30, 2009. No severance costs were incurred in the three months ended September 30, 2009.

All of the aforementioned severance costs incurred in 2009 were paid prior to December 31, 2009. No severance costs were incurred in the three or nine months ended September 30, 2010. All of the severance costs related to the February 2008 transition to Singapore, and the February 2009 workforce reduction have been classified as severance in our statement of operations.

14. RECENT ACCOUNTING DEVELOPMENTS:

Prior to January 1, 2010, we recognized revenue based on multiple element revenue guidance which required the existence of vendor specific objective evidence of fair value (VSOE) for the undelivered elements in an arrangement in order for us to account for the elements separately. We utilized the residual method of allocation to account for delivered elements.

In October 2009, the Financial Accounting Standards Board (FASB) amended guidance in FASB Accounting Standards Codification^TM (ASC) 605, Revenue Recognition, 25, “Multiple-Element Arrangements,” to (1) modify the separation criteria by eliminating the criterion that requires objective and reliable evidence of fair value for the undelivered item(s), and (2) eliminates the use of the residual method of allocation and instead requires that arrangement consideration be allocated, at the inception of the arrangement, to all deliverables based on their relative selling price. The FASB also issued guidance to amend the scope of ASC 985, Software, 605, “Revenue Recognition,” to exclude arrangements with tangible products containing both software and non-software components that function together to deliver a product’s essential functionality.

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Under the amended guidance, consideration is allocated to the deliverables at inception of an arrangement using the relative selling price method. Selling price is determined based on a selling price hierarchy, consisting of VSOE, third party evidence or estimated selling price. Under the amended guidance, we determined an estimated selling price for each of the elements in our multiple elements sales based on the selling price hierarchy and allocated consideration to the deliverables using the relative selling price method. We have adopted the amended guidance effective January 1, 2010. The impact of adopting the amended guidance was not material to our recognition of revenue in 2010 and would have been insignificant in 2009.

In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements” (“ASU No. 2010-06”). ASU No. 2010-06 requires new disclosures regarding significant transfers in and out of Levels 1 and 2, as well as information about activity in Level 3 fair value measurements, including presenting information about purchases, sales, issuances and settlements on a gross versus a net basis in the Level 3 activity roll forward. In addition, ASU No. 2010-06 clarifies existing disclosures regarding input and valuation techniques, as well as the level of disaggregation for each class of assets and liabilities. ASU No. 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures pertaining to purchases, sales, issuances and settlements in the roll forward of Level 3 activity; those disclosures are effective for interim and annual periods beginning after December 15, 2010. Our adoption of ASU No. 2010-06 effective January 1, 2010 had no current impact on our consolidated financial position, results of operations or cash flows.

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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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 and returns, warranty obligations, inventory valuation, the carrying value and any impairment of intangible assets, and income taxes. 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, 2009.

FORWARD LOOKING STATEMENTS:

The following management’s discussion and analysis contains a number of estimates and predictions that are forward looking rather than based on historical fact. Among other matters, we discuss (i) our level of anticipated revenues and net income for the fourth quarter of 2010; (ii) the potential margin improvements resulting from our next-generation solder paste and automated optical inspection (AOI) systems; (iii) the timing of initial revenue and margin improvements from other new products that we have under development, that have been recently introduced or we anticipate introducing in the future; (iv) our expectations regarding market acceptance of WaferSense^TM and our other semiconductor products; (v) our beliefs regarding trends in the general economy and its impact on markets for our equipment; and (vi) the impact of currency fluctuations on our operations. Although we have made these statements based on our experience and best estimate of future events, there may be events or factors that we have not anticipated, and the accuracy of our statements and estimates are subject to a number of risks, including those identified in our Annual Report on Form 10-K for the year ended December 31, 2009.

RESULTS OF OPERATIONS:

General

Our products are sold primarily into the electronics assembly, semiconductor DRAM memory, and semiconductor fabrication capital equipment markets, where we sell products both to original equipment manufacturers of production equipment and to end-user customers that produce circuit boards and semiconductor wafers and devices. Historically these markets have been very cyclical, with periods of rapid growth as worldwide capacity is added to support increased consumer demand for electronic products, and new capital equipment is purchased as a result of technology changes in electronics components, such as miniaturization, and changing production requirements. These periods of growth have historically been followed by periods of excess capacity and reduced capital spending.

Our results were favorably impacted in 2006 and 2007 as the worldwide demand for cell phones, smart phones, laptops and other consumer electronics remained strong, driving the need for increased production of printed circuit boards and memory modules, and thereby increasing demand for our electronic assembly and semiconductor products. After peaking in the third quarter of 2007, our revenue declined sequentially each quarter through the first quarter of 2009, as our results were negatively impacted by reduced levels of capital spending for electronics manufacturing capacity brought about by the deepening weakness in the global economy. New orders dropped off sharply late in the fourth quarter of 2008 as the global economy fell into a severe recession, and our results for 2009 were adversely affected by the ongoing weakness in the global electronics market.

Even before the recession, we worked to improve the efficiencies of our operations. In February 2008, we commenced plans to move a significant portion of our systems-related product development and manufacturing to Singapore. The transition of these functions to Singapore was substantially complete by the end of the first quarter of 2009 and has resulted in lower costs and a more focused R&D effort. Further, in direct response to the recession, we implemented workforce reductions in November 2008 and February 2009, including consolidation of manufacturing operations for our semiconductor products into our Minneapolis, Minnesota headquarters facility. Implementation of these cost reduction actions has not impacted any of our strategic growth programs.

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We believe that continued and timely development of new products and enhancements to existing products is essential to growing our position in the market. We commit substantial resources to research and development efforts, which play a critical role in maintaining and advancing our position as a leading provider of optical sensors and systems. During the past several years, research and development efforts have been focused on a number of development activities critical to our future growth and success, including the following:

• Our stand alone next generation SE500 solder paste inspection system and our new next generation QX500 automated optical inspection (AOI) system.

• A new mid-range SE350 solder paste inspection system based on the 3D inspection technology used in the SE500. The SE350 is a lower cost system for customers that do not require the full inspection functionality of the SE500.

• Our common hardware platforms and sensor technology utilized in both our new QX500 automated optical inspection (AOI) system and a new embedded inspection solution we have developed for DEK offering 100% 2D solder paste inspection with no cycle time penalty.

• Our Embedded Process Verification (EPV®) technology.

• A new solar wafer alignment camera capable of performing accurate high-speed alignment measurements within the wafer print nest, including traditional wafer edge alignment of both monocrystalline and polycrystalline wafer materials.

• Continued investment in our highly profitable WaferSense™ line of products.

The global electronics market strengthened significantly in 2010. We experienced particularly strong demand in the second quarter of 2010, as pent-up demand and an improving economy led to significantly increased sales of alignment sensors and our stand alone solder paste inspection and AOI systems. Sales of sensors continued at these strong levels into the third quarter, while systems sales moderated to more normal levels, in part because of the delay in acceptance of a large order. We nevertheless believe that improving market conditions, the efficiencies in operations we have implemented, and the new products we have introduced and anticipate introducing in the next year, will lead to improved operating results in future periods. For the quarter ending September 30, 2010, we generated a profit of $0.14 per share on revenue of $14.1 million, a significant improvement when compared to the quarter ending September 30, 2009. In addition, we are forecasting a profit of $0.07 to $0.11 per share in the fourth quarter of 2010 on revenue of $13.0-$14.0 million, compared to the fourth quarter of 2009 when we incurred a loss of $0.24 per share on revenue of $9.0 million.

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Segment Results

Operating results for our electronic assembly and semiconductor segments for the three and nine month periods ended September 30, 2010 and 2009 are as follows:

	Three months ended September 30, 2010						Three months ended September 30, 2009
(In thousands)	Electronic Assembly		Semi- Conductor		Total		Electronic Assembly			Semi- Conductor			Total
Revenues	$	12,357	$	1,788	$	14,145	$	7,766		$	784		$	8,550
Cost of revenues		6,990		492		7,482		5,369			244			5,613
Gross margin		5,367		1,296		6,663		2,397			540			2,937
Research and development expenses		1,661		253		1,914		1,478			335			1,813
Selling, general and administrative expenses		3,117		413		3,530		2,523			312			2,835
Severance		—		—		—		(32	)		—			(32	)
Amortization of intangibles		27		18		45		27			18			45
Income (loss) from operations	$	562	$	612	$	1,174	$	(1,599	)	$	(125	)	$	(1,724	)
	Nine months ended September 30, 2010						Nine months ended September 30, 2009
(In thousands)	Electronic Assembly		Semi-Conductor		Total		Electronic Assembly			Semi- Conductor			Total
Revenue	$	38,722	$	4,263	$	42,985	$	15,975		$	2,116		$	18,091
Cost of revenue		23,187		1,223		24,410		11,349			829			12,178
Gross margin		15,535		3,040		18,575		4,626			1,287			5,913
Research and development expenses		4,626		772		5,398		4,748			872			5,620
Selling, general and administrative expenses		9,313		1,108		10,421		8,523			946			9,469
Severance		—		—		—		249			114			363
Amortization of intangibles		82		54		136		82			54			136
Income (loss) from operations	$	1,514	$	1,106	$	2,620	$	(8,976	)	$	(699	)	$	(9,675	)

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Revenues

Our revenues increased by 65% to $14.1 million in the three months ended September 30, 2010 from $8.6 million in the three months ended September 30, 2009, and increased by 138% to $43.0 million in the nine months ended September 30, 2010 from $18.0 million in the nine months ended September 30, 2009. The following table sets forth revenues by product line for the three and nine month periods ended September 30, 2010 and 2009:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2010		2009		2010		2009
Electronic Assembly
OEM Alignment Sensors	$	6,896	$	2,599	$	18,500	$	5,243
SMT Inspection Systems		5,461		5,167		20,222		10,732
Total Electronic Assembly		12,357		7,766		38,722		15,975
Semiconductor		1,788		784		4,263		2,116
Total	$	14,145	$	8,550	$	42,985	$	18,091

          Electronic Assembly

Revenue from sales of our OEM alignment sensors increased by $4.3 million or 165% in the three months ended September 30, 2010 to $6.9 million, up from $2.6 million in the three months ended September 30, 2009, and increased by 253% to $18.5 million in the nine months ended September 30, 2010, up from $5.2 million in the nine months ended September 30, 2009. Revenue from sales of our stand alone SMT inspection systems products increased by $294,000 or 6% to $5.5 million in the three months ended September 30, 2010, up from $5.2 million in the three months ended September 30, 2009 and increased by 88% to $20.2 million in the nine months ended September 30, 2010, up from $10.7 million in the nine months ended September 30, 2009.

The global recession caused severe weakness and disruption in our electronics markets starting late in 2008 and throughout all of 2009, resulting in very low levels of revenue in 2009 from both our OEM alignment sensors and stand alone SMT inspection systems products. The global electronics market strengthened in 2010.

Sales of alignment sensors during the quarter ended September 30, 2010 increased 6% from the strong level posted in the quarter ended June 30, 2010. Sales of inspection systems during the quarter ended September 30, 2010 decreased 37% from the quarter ended June 30, 2010, primarily because of delayed acceptance of a significant order for our QX500 automated optical inspection (AOI) system by an original design manufacturer (ODM), as well as more normalized levels of customer demand. Although sales moderated overall in the third quarter of 2010 from the second quarter to more normal levels, we believe that this represents some pent-up demand filled in the second quarter, the timing of acceptance and other quarter to quarter variation.

In addition to continued sales of our SE500 solder paste inspection (SPI) system, we recorded solid sales of the SE350 SPI system that was introduced in this year’s first quarter. Our third quarter revenue also benefited from continued shipments of solar wafer alignment cameras to an equipment manufacturer for the photovoltaic cell market, and we expect continued sales of this product in the fourth quarter and into next year. We believe that improved market conditions, combined with favorable market acceptance of the new products we have recently introduced, resulted in the higher revenue levels in the three and nine months ended September 30, 2010 compared to the same periods of 2009. We believe that these new products, and that technology trends toward smaller components and increased product speeds, will contribute to increased demand in 2011.

Export revenue from OEM alignment sensors and SMT inspection systems totaled $11.8 million or 95% of electronic assembly revenue in the three months ended September 30, 2010, compared to $6.9 million or 88% of electronic assembly revenue in the three months ended September 30, 2009. Export revenue from electronic assembly OEM alignment sensors and SMT inspection systems totaled $35.4 million or 91% of electronic assembly revenue in the nine months ended September 30, 2010, compared to $13.6 million or 85% of electronic assembly revenue in the nine months ended September 30, 2009. Sales to international customers continue to be significant, as manufacturing of electronic components has migrated offshore, particularly to China and other areas of Asia.

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          Semiconductor

Revenues from semiconductor products increased by 128% to $1.8 million in the three months ended September 30, 2010 from $784,000 in the three months ended September 30, 2009, and increased by 101% to $4.3 million in the nine months ended September 30, 2010 from $2.1 million in the nine months ended September 30, 2009. Revenues from semiconductor products in the three months ended September 30, 2010 also represented a sequential 38% increase from $1.3 million in the three months ended June 30, 2010. The increase in revenue was due to improving conditions in the market for semiconductor fabrication equipment, coupled with favorable market acceptance of our new WaferSense™ products.

We anticipate that future growth in our semiconductor revenues, exclusive of changes related to capital procurement cycles will come from our new WaferSense™ products, a family of wireless, wafer like precision measurement tools for in-situ setup, calibration and process optimization in semiconductor processing equipment. We have introduced a number of new WaferSense™ products in recent years, including various leveling, gapping, teaching and vibration sensors. We anticipate formal introduction of our new particle sensor in the next quarter. WaferSense revenue increased to $1,186,000 in the three months ended September 30, 2010 from $335,000 in the three months ended September 30, 2009 and increased by 173% to $2.4 million in the nine months ended September 30, 2010 from $870,000 in the nine months ended September 30, 2009.

Export revenue from semiconductor products totaled $679,000 or 38% of revenue in the three months ended September 30, 2010, compared to $308,000 or 39% of revenue in the three months ended September 30, 2009. Export revenue from semiconductor products totaled $1,545,000 or 36% of revenue in the nine months ended September 30, 2010, compared to $636,000 or 30% of revenue in the nine months ended September 30, 2009. The increase in the percentage of sales coming from exports for our semiconductor products reflects proportionately higher WaferSense revenue, as these products tend to have a higher concentration of international sales.

Cost of Revenue and Gross Margin

          Electronic Assembly

Cost of revenue for our electronic assembly segment increased by $1.6 million or 30% in the three months ended September 30, 2010 and increased by $11.8 million or 104% in the nine months September 30, 2010 when compared to the same periods of 2009, due to the significantly higher sales in 2010. Gross margin as a percentage of electronic assembly sales was 43% in the three months ended September 30, 2010, compared to 31% in the three months ended September 30, 2009 and 38% in the three months ended June 30, 2010. Gross margin as a percentage of electronic assembly sales was 40% in the nine months ended September 30, 2010 compared to 29% in the nine months ended September 30, 2009. The improvement in gross margin percentage was due to significantly increased sales of higher margin OEM alignment sensors, better manufacturing leverage resulting from substantially higher production volumes over which to spread fixed manufacturing overhead costs, the favorable impact of cost reduction programs and our new cost reduced SMT inspection system products. Our next generation SE500 and new mid-range SE350 solder paste inspection systems, and our new QX500 automated optical inspection (AOI) system are significantly cost reduced when compared to our earlier generation inspection system products.

We anticipate that gross margins as a percentage of electronic assembly sales in the fourth quarter of 2010 will be at or slightly below the level in the three months ended September 30, 2010, reflecting the negative impact of a slight change in product mix and the strengthening Singapore currency on our costs, offset in part by continued benefits from our cost reduction programs and new cost reduced system platforms.

The electronic assembly market is highly price competitive, resulting in continual pressure on our gross margins. We compensate for pricing pressure by introducing new products with more features and improved performance and through manufacturing cost reduction programs. For example, we believe our next-generation SE500 and SE350 solder paste inspection systems and QX500 automated optical inspection (AOI) system combines a reduction in cost with enhanced performance. Other recently introduced products including our solar wafer alignment camera, embedded process verification (EPV) technology and the embedded solder paste inspection solution we developed for DEK, have more favorable margins than our existing products.

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          Semiconductor

Cost of revenue for our semiconductor segment increased by $248,000 or 102% in the three months ended September 30, 2010 and increased by $394,000 or 48% in the nine months ended September 30, 2010 when compared to the same periods of 2009, due to the significantly higher sales in 2010. Gross margin as a percentage of semiconductor sales was 72% in the three months ended September 30, 2010 and 71% in the nine months ended September 30, 2010, compared to 69% in the three months ended September 30, 2009 and 61% in the nine months ended September 30, 2009. Gross margin as a percentage of semiconductor sales improved due to the cost benefit from consolidation of manufacturing for our semiconductor products into our Minneapolis, Minnesota headquarters, increased sales of higher margin WaferSense™ products and from improved manufacturing leverage, resulting from higher production volumes over which to spread fixed manufacturing overhead costs.

Operating Expenses

We believe continued investment in research and development of new products, coupled with continued investment in and development of our sales channel is critical to future growth and profitability. We historically have maintained research and development and sales and marketing expenses at relatively high levels, even during periods of recession and downturn in our electronic assembly and semiconductor capital equipment markets, as we continue to fund development of important new products, and continue to invest in our sales channels and develop new sales territories.

In February 2008, we announced plans to move to Singapore a significant portion of our systems-related product development and manufacturing. The transition of systems-related product development to Singapore was substantially complete by the end of the fourth quarter of 2008 and the transition of manufacturing for our system products was substantially complete by the end of the first quarter of 2009. The realignment of our systems-related product development and manufacturing to Singapore has resulted in lower costs and a more focused development effort.

In response to the significant weakness in our markets and the global economy we reduced our workforce by 50 employees (over 30 in manufacturing, including direct labor, and approximately 20 in development, selling, general and administrative) from the start of the fourth quarter of 2008 through the end of the second quarter of 2009. Other cost saving measures implemented in 2009 include salary reductions and reduced spending for non-labor costs such as travel, supplies and the like. These cost saving measures, combined with savings from our transition to Singapore, provided significant annual expense savings. Implementation of the cost reduction actions discussed above had no impact on any of our strategic growth programs; work on our common hardware platforms for inspection, next generation inspection technologies, or pursuit of new OEM contracts.

Due to the improving economy, we elected to restore salary levels for our employees to pre-reduction levels in 2010. We have also added headcount, including temporary labor, since January 1, 2010 and anticipate that there will be other headcount additions, and costs will increase as business activity picks up and revenue returns to pre-recession levels. However, many of the cost savings measures that were put in place during 2008 and 2009 will continue to provide meaningful savings for the foreseeable future.

          Electronic Assembly

Research and development expenses for our electronic assembly segment were $1.7 million in the three months ended September 30, 2010, compared to $1.5 million in the three months ended September 30, 2009. Research and development expenses for our electronic assembly segment were $4.6 million in the nine months ended September 30, 2010, compared to $4.7 million in the nine months ended September 30, 2009. The decrease in research and development expenses in the nine months ended September 30, 2010, compared to the same period of 2009, resulted from completion of several R&D projects, including our next generation SE500 solder paste inspection system and improvements in focus and efficiency resulting from transition of systems related research and development to Singapore. The increase in research and development expenses for our electronic assembly segment in the three months ended September 30, 2010, compared to the same period of 2009, was due to additional proto-type expenditures for next generation inspection technology and system platforms.

We anticipate that research and development expenses in the fourth quarter of 2010 will be at or slightly above the third quarter level.

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Selling, general and administrative expenses for our electronic assembly segment were $3.1 million in the three months ended September 30, 2010, compared to $2.5 million in the three months ended September 30, 2009. Selling, general and administrative expenses for our electronic assembly segment were $9.3 million in the nine months ended September 30, 2010, compared to $8.5 million in the nine months ended September 30, 2009. Higher sales and marketing costs in the three and nine months ended September 30, 2010, including commissions for third party sales representatives resulting from higher levels of SMT inspection system sales, were partially offset by lower expense for doubtful accounts. Selling, general and administrative expenses for the nine months ended September 30, 2009 includes an $800,000 provision for doubtful accounts related to a key distributor of our SMT system products. The distributor remains in business, and is committed to paying us the amount owed. We presently anticipate that selling, general and administrative expenses in the fourth quarter of 2010 will be at or near the third quarter level.

          Semiconductor

Research and development expenses for our semiconductor segment were $253,000 in the three months ended September 30, 2010 compared to $335,000 in the three months ended September 30, 2009. Research and development expenses for our semiconductor segment were $772,000 in the nine months ended September 30, 2010 compared to $872,000 in the nine months ended September 30, 2009. Research and development expenses for our semiconductor segment in the three and nine months ended September 30, 2009 included $77,000 of expense for abandoned patents. Research and development expenses for our semiconductor segment principally reflect ongoing investment in our WaferSense™ product line.

Selling, general and administrative expenses for our semiconductor segment were $413,000 in the three months ended September 30, 2010 compared to $312,000 in the three months ended September 30, 2009. Selling, general and administrative expenses for our semiconductor segment were $1,108,000 in the nine months ended September 30, 2010, compared to $946,000 in the nine months ended September 30, 2009. The increase in the three and nine months ended September 30, 2010 reflects higher third party commission payments attributable to the higher level of sales. No significant changes are expected in the level of semiconductor operating expenses in the fourth quarter of 2010.

Severance Costs

We started to incur severance costs in February 2008 in connection with our decision to move a significant portion of development and manufacturing for our systems products to Singapore. The transition of systems-related product development was substantially complete by the end of the fourth quarter of 2008, and the transition of systems-related manufacturing was substantially complete by the end of the first quarter of 2009. Severance costs incurred in connection with the February 2008 decision to move our systems related product development and manufacturing to Singapore totaled $48,000 in the nine months ended September 30, 2009. Our results for the three months ended September 30, 2009 include a $32,000 benefit from the reversal of a portion of a prior severance accrual.

In February 2009, we further reduced our workforce by 24 positions in response to the weakening global economy, our transition to Singapore and our decision to consolidate manufacturing for our semiconductor products in our Minneapolis facility. Severance costs incurred in connection with the February 2009 workforce reduction totaled $315,000 in the nine months ended September 30, 2009. No severance costs were incurred in the three months ended September 30, 2009.

All of the aforementioned severance costs incurred in 2009 were paid prior to December 31, 2009. No severance costs were incurred in the three or nine months ended September 30, 2010. All of the severance costs related to the February 2008 transition to Singapore, and the February 2009 workforce reduction have been classified as severance in our statement of operations.

Interest and Other

Interest income and other includes interest earned on investments and gains and losses associated with foreign currency transactions and foreign currency swap agreements. Interest income and other decreased in the three and nine months ended September 30, 2010 compared to the same periods of 2009 due to lower rates of interest earned on invested funds and lower invested balances of cash equivalents and marketable securities.

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Provision for Income Taxes and Effective Income Tax Rate

We recorded a provision for income tax expense in the nine months ended September 30, 2010 at an effective tax rate of 22.0%, compared to an income tax benefit in the nine months ended September 30, 2009 at an effective tax rate of 43.7%. Our recorded income tax benefit for the three and nine months ended September 30, 2009 includes a $223,000 discrete benefit from reversal of a portion of our reserve for income taxes resulting from the closing of a domestic statute of limitations. Our recorded income tax benefit for the three and nine months ended September 30, 2009 also includes a $547,000 discrete benefit from reversal of a portion of our reserve for income taxes resulting from settlement of Internal Revenue Service audits of our 2006 and 2007 federal income tax returns. These discrete benefits resulted in a higher effective tax rate due to our pre-tax loss in 2009. Discrete items impacting the effective tax rate in the nine months ended September 30, 2010 were inconsequential. Other items impacting the effective tax rate for 2010, compared to 2009, include the anticipated benefit from the domestic manufacturer’s production incentive, additional tax expense in foreign tax jurisdictions with lower tax rates than the U.S federal statutory rate and recognition of the benefit from the revised Minnesota state R&D tax credit that was signed into law during the second quarter of 2010.

We currently have significant deferred tax assets as a result of temporary differences between taxable income on our tax returns and U.S. GAAP income, research and development tax credit carry forwards and foreign net operating loss carry forwards. A deferred tax asset generally represents future tax benefits to be received when temporary differences previously reported in our financial statements become deductible for income tax purposes, or when net operating loss carry forwards or credits are applied against future taxable income, or when tax credit carry forwards are utilized on our tax returns. We assess the realizability of our deferred tax assets and the need for a valuation allowance based on the guidance provided in current financial accounting standards.

Significant judgment is required in determining the realizability of our deferred tax assets. The assessment of whether valuation allowances are required considers, among other matters, the nature, frequency and severity of any current and cumulative losses, forecasts of future profitability, the duration of statutory carry forward periods, our experience with loss carry forwards not expiring unused and tax planning alternatives.

In analyzing the need for valuation allowances, we first considered our history of cumulative losses for U.S. income tax purposes over the past three years and also gave significant consideration to our results for U.S. income tax purposes over the past five years, as the economic cycles in our industry have tended to average five years in length (from peak to trough). We also considered our forecasts of future profitability, the duration of statutory carry forward periods and tax planning alternatives. Finally, we considered the length and severity of the recent global economic crisis, the impact that it had on our operating results and our expectation for rebound given recent signs of recovery in the global economy and more specifically in our markets. After considering all of these factors, and after considering other significant positive evidence, we concluded that a valuation allowance with respect to substantially all of our U.S. based deferred tax assets was not required at September 30, 2010.

Our results in both 2008 and 2009 were negatively impacted by the recent global economic slowdown, and we incurred a loss in the United States in both 2008 and 2009, where most of our net deferred tax assets are recorded. Therefore, achievement of profitability in the United States will be a significant factor in determining our continuing ability to carry these deferred tax assets without recording a valuation allowance. The global electronics market has significantly strengthened. We are seeing significant demand from manufacturers of SMT assembly equipment who purchase our alignment sensor products, and for our stand alone solder paste inspection and AOI systems. We believe that these improving market conditions, the efficiencies in operations we have implemented, and the new products we have introduced and anticipate introducing in the next year, will lead to improved operating results and continued profitability in future periods. If future results from our operations are less than projected, a valuation allowance may be required against virtually all of our deferred tax assets, which could have a material impact on our results of operations in the period in which it is recorded.

Deferred tax assets at September 30, 2010, include net operating loss carry forwards incurred in the UK by CyberOptics Ltd., which was acquired in 1999. The utilization of these net operating loss carry forwards is dependent on CyberOptics Ltd.’s ability to generate sufficient UK taxable income during the carry forward period.

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Order Rate and Backlog

Our orders totaled $14.0 million in the three months ended September 30, 2010, compared to $17.7 million in the three months ended June 30, 2010 and $7.5 million in the three months ended September 30, 2009. Backlog totaled $12.8 million at September 30, 2010, $12.9 million at June 30, 2010 and $5.4 million at September 30, 2009. The scheduled shipment (or estimated timing of revenue for systems recognized upon acceptance) for backlog at September 30, 2010 is as follows:

(In thousands)	Backlog
4th Quarter 2010	$	11,711
1st Quarter 2011 and after		1,116
Total backlog	$	12,827

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents increased by $2.9 million in the nine months ended September 30, 2010 resulting from $4.7 million of proceeds from maturities and sales of marketable securities, net of purchases, offset in part by $914,000 of cash used by operating activities and purchases of capital assets totaling $1.1 million. Our cash and cash equivalents fluctuate in part because of maturities of marketable securities, and investment of cash balances in marketable securities, 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. Combined balances of cash and marketable securities decreased by $2.2 million to $19.7 million as of September 30, 2010 from $21.9 million as of December 31, 2009.

Operating activities used $914,000 of cash in the nine months ended September 30, 2010. Cash provided by operations included net income of $2.2 million, which included non-cash expenses totaling $2.0 million for depreciation and amortization, deferred taxes, non-cash gains and losses from foreign currency transactions and stock compensation costs.

Changes in operating assets and liabilities using cash included increases in accounts receivable of $4.6 million, inventories of $7.2 million and other assets of $282,000. Changes in operating assets and liabilities providing cash included increases in accounts payable of $3.2 million and accrued expenses and other liabilities of $1.3 million and decreases in income tax refunds receivable of $2.5 million. The increase in accounts receivable was due to higher sales levels in the third quarter of 2010, compared to the fourth quarter of 2009. Inventories were higher due to increased material purchases to support the higher level of sales expected in the second half of 2010 and the delayed acceptance of customer orders at September 30, 2010. The increase in accounts payable resulted from increased material purchases and a conscious effort on our part to extend the timing of vendor payments. Accrued expenses and other liabilities increased due to higher warranty, commission and incentive compensation accruals, resulting from higher sales levels and improved operating results. Income tax refunds receivable decreased due to receipt of our anticipated tax refund resulting from carryback of our 2009 net operating loss to prior periods.

Operations used $6.2 million of cash in the nine months ended September 30, 2009. Cash used by operations included a net loss of $5.2 million which included $1.1 million of net non-cash expenses for depreciation and amortization, provision for doubtful accounts, deferred taxes, foreign currency transactions, stock compensation costs and realized gains on available for sale securities. Changes in operating assets and liabilities using cash included increases in accounts receivable of $992,000, other assets of $278,000, and decreases in accrued expenses of $2.1 million. Changes in operating assets and liabilities providing cash included decreases in inventories of $658,000 and increases in accounts payable of $696,000. The increase in accounts receivable was due to higher sales levels in the third quarter 2009, compared to the fourth quarter 2008. Other assets were higher due to anticipated income tax refunds resulting from our losses in the first nine months of 2009. The decrease in accrued expenses resulted from lower levels of income tax reserves resulting from the closing of a domestic statute of limitations and settlement of Internal Revenue Service audits of our 2006 and 2007 federal income tax returns, lower warranty accruals resulting from the lower level of sales in the first nine months of 2009 and payment of accrued severance. Inventories were lower due to reduced material purchases in the first half of the year in response to sharply lower sales levels and the sharp 65% sequential increase in quarterly sales in the third quarter of 2009. Accounts payable were higher due to the timing of inventory purchases and a conscious effort on our part to extend the timing of vendor payments.

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Investing activities provided $3.6 million of cash in the nine months ended September 30, 2010 compared to providing $6.2 million of cash in the same period last year. Changes in the level of investment in marketable securities, resulting from the purchases, sales and maturities of those securities generated $4.7 million of cash in the nine months ended September 30, 2010, compared to generating $6.8 million of cash in the same period last year. We used $1.1 million of cash in the nine months ended September 30, 2010 and $630,000 of cash in the nine months ended September 30, 2009 for the purchase of fixed asset and capitalized patent costs.

Financing activities provided $211,000 of cash in the nine months ended September 30, 2010 and $164,000 of cash in the nine months ended September 30, 2009 from the issuance of common stock under our employee stock purchase plan and the exercise of stock options.

At September 30, 2010, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of establishing off-balance sheet arrangements or other contractually narrow or limited purposes.

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, 2009. There were no significant changes to our contractual obligations in the nine months ended September 30, 2010, other than a $7.5 million increase in our commitment for future inventory purchases, to support our significant increase in recent sales activity. At the present time, we have no material commitments for capital expenditures. Purchase commitments for inventory will vary based on the volume of revenue and resulting inventory requirements.

Our cash, cash equivalents and marketable securities totaled $19.7 million at September 30, 2010. We believe that our available balances of cash, cash equivalents and marketable securities will be adequate to fund our cash flow needs for the foreseeable future.

Fair Value Measurement

We determine the fair value of our assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. We use a fair value hierarchy with three levels of inputs, of which the first two are considered observable and the last unobservable, to measure fair value: The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1). The next highest priority is based on quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in non-active markets or other observable inputs (Level 2). The lowest priority is given to unobservable inputs (Level 3).

The following provides information regarding fair value measurements for our cash equivalents and marketable securities as of September 30, 2010 and December 31, 2009 according to the three-level fair value hierarchy:

			Fair Value Measurements at September 30, 2010 Using
(In thousands)	Balance September 30, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents	$	2,613	$	—	$	2,613	$	—
U.S. government and agency obligations		8,105		—		8,105		—
Corporate debt securities		4,316		—		4,316		—
Asset backed securities		206		—		206		—
Equity securities		52		52		—		—
Total	$	15,292	$	52	$	15,240	$	—

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			Fair Value Measurements at December 31, 2009 Using
(In thousands)	Balance December 31, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash equivalents	$	2,320	$	—	$	2,320	$	—
U.S. government and agency obligations		14,161		—		14,161		—
Corporate debt securities		3,301		—		3,301		—
Asset backed securities		210		—		210		—
Equity securities		30		30		—		—
Total	$	20,022	$	30	$	19,992	$	—

During the nine months ended September 30, 2010 there were no significant transfers to or from the three level hierarchy. The carrying amounts of financial instruments such as cash equivalents, accounts receivable, other assets, accounts payable, accrued expenses and other current liabilities approximate the related fair values due to the short term maturities of these instruments. Non-financial assets such as equipment and leasehold improvements, goodwill and intangible assets are subject to nonrecurring fair value measurements if they are deemed impaired. The impairment models used for these assets are described in more detail in our Annual Report on Form 10-K for the year ended December 31, 2009. Our foreign currency swap agreements are structured to mature on the last day of each quarter. The fair value associated with these agreements is inconsequential and represents a Level 2 measurement.

Inflation and Foreign Currency Transactions

Changes in our revenues have resulted primarily because of changes in the level of unit shipments and the relative strength of the worldwide electronics and semiconductor fabrication capital equipment markets. We believe that inflation has not had a significant effect on our operations.

Virtually all of our international export sales are negotiated, invoiced and paid in U.S. dollars. We manufacture our SMT systems products in Singapore and a portion of our raw material purchases are denominated in Singapore dollars. We also have R&D and sales personnel located in Singapore and sales offices located in other parts of the world. Although currency fluctuations do not significantly affect our revenue, they can impact our costs and influence the price competitiveness of our products and the willingness of existing and potential customers to purchase units. Recently, the Singapore dollar has strengthened in relation to the U.S dollar and this factor could negatively impact our results in future periods.

We enter into foreign currency swap agreements to hedge short term inter-company financing transactions with our subsidiaries in the United Kingdom and Singapore. These currency swap agreements are structured to mature near the last day of each quarter, and are designated as cash flow hedges. At September 30, 2010, we had two open swap agreements that were purchased on that day. As a result, any unrealized gains or losses as of September 30, 2010 were inconsequential.

In the three months ended September 30, 2010, we recognized net gains (losses) from settlement of foreign currency swap agreements of $(63,000) in addition to foreign currency transaction gains (losses) on the underlying inter-company balances of $90,000. In the nine months ended September 30, 2010, we recognized net gains (losses) from settlement of foreign currency swap agreements of $(32,500) that offset foreign currency transactions gains (losses) on the underlying inter-company balances of $35,000.

In the three months ended September 30, 2009, we recognized net gains (losses) from settlement of foreign currency swap agreements of $(28,000) that offset foreign currency transaction gains (losses) on the underlying inter-company balances of $(29,000). In the nine months ended September 30, 2009, we recognized net gains (losses) from settlement of foreign currency swap agreements of $(211,000) that offset foreign currency transactions gains (losses) on the underlying inter-company balances of $116,000.

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Recent Accounting Developments

Prior to January 1, 2010, we recognized revenue based on multiple element revenue guidance which required the existence of vendor specific objective evidence of fair value (VSOE) for the undelivered elements in an arrangement in order for us to account for the elements separately. We utilized the residual method of allocation to account for delivered elements.

In October 2009, the Financial Accounting Standards Board (FASB) amended guidance in FASB Accounting Standards Codification^TM (ASC) 605, Revenue Recognition, 25, “Multiple-Element Arrangements,” to (1) modify the separation criteria by eliminating the criterion that requires objective and reliable evidence of fair value for the undelivered item(s), and (2) eliminates the use of the residual method of allocation and instead requires that arrangement consideration be allocated, at the inception of the arrangement, to all deliverables based on their relative selling price. The FASB also issued guidance to amend the scope of ASC 985, Software, 605, “Revenue Recognition,” to exclude arrangements with tangible products containing both software and non-software components that function together to deliver a product’s essential functionality.

Under the amended guidance, consideration is allocated to the deliverables at inception of an arrangement using the relative selling price method. Selling price is determined based on a selling price hierarchy, consisting of VSOE, third party evidence or estimated selling price. Under the amended guidance, we determined an estimated selling price for each of the elements in our multiple elements sales based on the selling price hierarchy and allocated consideration to the deliverables using the relative selling price method. We have adopted the amended guidance effective January 1, 2010. The impact of adopting the amended guidance was not material to our recognition of revenue in 2010 and would have been insignificant in 2009.

In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements” (“ASU No. 2010-06”). ASU No. 2010-06 requires new disclosures regarding significant transfers in and out of Levels 1 and 2, as well as information about activity in Level 3 fair value measurements, including presenting information about purchases, sales, issuances and settlements on a gross versus a net basis in the Level 3 activity roll forward. In addition, ASU No. 2010-06 clarifies existing disclosures regarding input and valuation techniques, as well as the level of disaggregation for each class of assets and liabilities. ASU No. 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures pertaining to purchases, sales, issuances and settlements in the roll forward of Level 3 activity; those disclosures are effective for interim and annual periods beginning after December 15, 2010. Our adoption of ASU No. 2010-06 effective January 1, 2010 had no current impact on our consolidated financial position, results of operations or cash flows.

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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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 September 30, 2010, 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 1A – RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009, which could materially affect our business, financial condition or future results.

ITEM 6 – EXHIBITS

10.1:	Tenancy Agreement between NIDEC Component Technology Co. LTD and CyberOptics PTE LTD (Singapore) Term 15 May 2011 to 24 July 2013.
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

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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, Chief Executive Officer and Chair
	(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: November 8, 2010

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EX-10.1

Exhibit 10.1

TENANCY AGREEMENT

BETWEEN

NIDEC COMPONENT TECHNOLOGY CO., LTD

AND

CYBEROPTICS (SINGAPORE) PRIVATE LIMITED

PREMISES

21 UBI ROAD 1 #02-01 SINGAPORE 408724

TERM

15 MAY 2011 TO 24 JULY 2013

1

This AGREEMENT is made on the 20^th day of September Two Thousand And Ten (2010) between

NIDEC COMPONENT TECHNOLOGY COMPANY, LIMITED (formerly known as Nidec Brilliant Co. Ltd, Registration No. 198403813D), a company incorporated in the Republic of Singapore and having its registered office at 36 Loyang Way Singapore 508771 (herein after called the “Landlord”)

and

CYBER OPTICS (S) PTE LTD (Registration No. 200103162D), a company incorporated in the Republic of Singapore and having its registered office at 21 Ubi Road #02-01, Singapore 408724 (hereinafter called the “Tenant”)

WHEREAS
1	The Landlord is the Head-Tenant of the property (hereinafter referred to as “the Building”) under and by virtue of a Lease dated 25th July 2006 (hereinafter called “the Main Lease”) entered into with RBC Dexia Trust Services Singapore Limited (Company Registration No:1995046772Z), a company incorporated in Singapore and having its registered office at 9 Raffles Place #42-01, Republic Plaza, Singapore 048619, as trustee of Cambridge Industrial Trust (hereinafter referred to as “RBC”).
2	The Landlord to apply to the Housing And Development Board (herein referred to as “HDB”) to allow the Landlord to lease 21 Ubi Road 1 # 02-01 Singapore 408724 as indicated in the floor plan annexed in Schedule 1 (“the Demised Premises”) to the Tenant on the signing of the Tenancy Agreement. If HDB has not given approval by two (2) months from the date of the signing of the Tenancy Agreement both the Tenant and the Landlord have the option to terminate the agreement without any liability to the parties to the contract. If the HDB is still processing the application two (2) months after the date of the signing of the Tenancy agreement, the party who opt to terminate the Tenancy Agreement to be liable for the stamp duty paid.
3	The Landlord has agreed to lease the Demised Premises to the Tenant subject to the terms and conditions contained herein.

NOW IT IS HEREBY AGREED as follows:

1. The Landlord agrees to let and the Tenant agrees to take all that property with an approximate area of 20,000 square feet known as 21 Ubi Road 1 # 02-01 SINGAPORE 408724 (hereinafter called “the said premises”) TO HOLD and extend the tenancy from the 15^TH DAY OF MAY 2011 to 24^TH JULY 2013 at the rent of SINGAPORE DOLLARS: THIRTY EIGHT THOUSAND ONLY (S$38,000.00) per month exclusive of GST payable monthly in advance without deduction whatsoever on or before the 15^th day of each calendar month by giro or electronic payment direct to the Landlord’s bank account, as follows:

Beneficiary name: Nidec Component Technology Co., Ltd
Beneficiary’s bank name: The Bank of Tokyo-Mitsubishi UFJ Ltd,
Bank code: 7126
Branch code: 001
Bank Account number: 110759

2

2.    The Tenant hereby agrees with the Landlord as follows:
	a.	To pay the said rent at the times and in manner aforesaid.	RENTAL PAYMENT
	To maintain a deposit of SINGAPORE DOLLARS: ONE HUNDRED AND FOURTEEN THOUSAND ONLY (S$114,000.00) being equivalent to THREE (3) months rent upon the commencement date of 15th May 2011 of this lease renewal agreement as security against the breach of any term or condition of this Agreement, such deposit is to be refunded within fourteen (14) days (free of interest) at any expiry or lawful termination of this tenancy. The Security Deposit shall be retained by the Landlord throughout the Term free of any interest to the Tenant with power for the Landlord, without prejudice to any other right or remedy hereunder, to deduct therefrom the amount of any Rent and Service Charge in arrears or interest thereon or any expense or sum payable to the Landlord remaining unpaid or any loss or damage sustained by the Landlord as a result of any breach, non-observance or non-performance by the Tenant of any such covenants, conditions, stipulations and agreements Provided Always that the Security Deposit shall not be deemed to be payment of Rent or Service Charge unless the Landlord exercises the Landlord’s rights herein. The four (4) months deposit of S$160,000.00 held by the Landlord based on the original Tenancy agreement dated 28 March 2008 to be reduced to three (3) months deposit amounting to S$114,000.00 from the commencement of the renewal lease on 15 May 2011, and the balance of the deposit amounting to S$46,000.00 to be returned to the Tenant.		SECURITY DEPOSIT
	b.	To pay all charges due in respect of any telephones or other equipment installed at the said premises, including any tax payable thereon.	TELEPHONE & OTHER APPLICANCES
	c.	To apply for and to pay all charges for and connected with licences required for the use of any televisions and radios on the Premises.	TV & RADIO LICENCES
	d.	All telephone, water, gas and/or electricity facilities and meters or sub-meters installed for the use of the Premises shall be arranged and installed privately by the Tenant and at the Tenant’s own cost and expense.	METERS / SUBMETERS
	e.	To pay all charges for the supply of water, electricity, gas and any water borne sewerage system and any other services supplied separately to the Premises charged by relevant authorities and where such services are being supplied privately and metered separately to the Premises, to pay to the Landlord on demand a proportionate part of the costs thereof, such costs to be calculated by the Landlord and	PAYMENT OF OUTGOINGS

3

	notified to the Tenant in writing, and such notification shall be conclusive as to the amount of the said costs. Tenant shall also pay or reimburse the Landlord on demand for all taxes or impositions levied or imposed from time to time on the services supplied to the Premises (or if not levied or imposed separately in respect of the Premises, then a proportionate part of such taxes or impositions) and any increase thereon.
f.	To keep the interior of the said premises including the sanitary and water apparatus, furniture, doors and windows, flooring, walls, ceilings, locks, installations of fittings for lights and power thereof in good and tenantable repair and condition throughout this tenancy (fair wear and tear and damage by any act beyond the control of the Tenant excepted).		INTERIOR MAINTENANCE
g.	To keep the exterior of the said premises clean and tidy and that there should not be any act of vandalism to the common areas as Well as the exterior of the said premises.		EXTERIOR MAINTENANCE
h.	To ensure that all activities to be carried out within the said premises. No goods or machinery are to be stored or kept outside the said premises. To make sure the facade of the building is kept and yield up the same in original order and condition (fair wear and tear and damage by any act beyond the control of the Tenant excepted). Where any facade of the building is lost, damaged or broken due to the Tenants gross negligence or willfully causing the damage, the full cost of the repair or replacement shall be borne by the Tenant.		ACTIVITIES
i.	(i)	To permit the Landlord and its agents, surveyors and workmen with all necessary appliances to enter upon the said premises at all reasonable times by prior appointment for the purpose whether of viewing the condition thereof or of doing such works and things as may be required for any repairs, alterations or improvements whether of the said premises or of any parts of any building to which the said premises may form a part of or adjoin.	ACCESS TO PREMISES FOR REPAIRS
	(ii)	During the two (2) months immediately preceding the expiration of the tenancy herein to permit the Landlord or its representatives at all reasonable times and by prior appointment to bring interested parties to view and the said premises for the purpose of letting the same.	ACCESS TO PREMISES FOR NEW TENANTS
	(iii)	During the tenancy, to allow the Landlord or its representatives at	FOR POTENTIAL

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		all reasonable times and by prior appointment to bring any interested parties to view the said premises in the event of a prospective sale thereof. The said premises shall be sold subject to this tenancy.	PURCHASES
j.	At all times during the term hereby created to comply with all such requirements as may be imposed upon the Tenant by Management Corporation requirements and or any statute legislation now or hereafter in force and any orders, rules, regulations, requirements and notices thereunder.		COMPLIANCE WITH RULES
k.	At the expiration or earlier determination of the term:		YIELD UP IN REPAIR AT THE END OF THE TERM
	(i)	The Tenant shall surrender to the Landlord all keys giving access to all parts of the Demised Premises irrespective of whether or not the same have been supplied by the Landlord.
	(ii)	The Tenant shall reinstate (as set out in Clause (k) (v) below) and quietly yield up the Demised Premises in the original condition (fair wear and tear excepted) to the reasonable satisfaction of the Landlord after removal of all additions and improvements made by the Tenant to the Demised Premises after commencement of the first lease Term on 15 May 2008 and all fixtures which may be fixed or fastened to or upon the Demised Premises by the Tenant save for those which the Landlord has expressly agreed need not be reinstated.
	(iii)	Without prejudice to the generality of the provisions of Clauses (k)(ii) and (v), the Tenant shall yield up all Mechanical and Electrical Equipment, and sanitary installations therein (fair wear and tear excepted) in working condition and satisfactory maintenance. Any repairs (if needed) to be carried out in the case of the above equipment shall be carried out by a specialist contractor nominated by the Tenant and approved by the Landlord, such approval not to be unreasonably withheld.
	(iv)	If the Tenant fails to reinstate the Demised Premises in accordance with the provisions of this Clause (k), the Landlord may effect the same at the Tenant’s cost and expense. All costs and expenses incurred by the Landlord together with the normal amount of Rent in accordance with Clause 1 which the Landlord shall be entitled to receive had the reasonable period within which such works effected by the Landlord been added to the Term, shall be paid by the Tenant within seven (7) Business Days

5

		of the Landlord notifying the Tenant of the amount thereof, and in this connection, a certificate from the Landlord as to the amount of costs and expenses incurred by the Landlord shall be conclusive and binding on the Tenant, save for manifest error. The Tenant shall pay to the Landlord on demand all costs and expenses so incurred by the Landlord with interest from the date of expenditure until the date they are paid by the Tenant to the Landlord, such costs and expenses and Interest to be recoverable as if they were rent in arrears.
	(v)	For the purpose hereof the term reinstate shall include
		•	the washing of the whole of the interior of the Demised Premises (including the cleaning of all glass, doors and windows);
		•	the painting or other appropriate treatment of all of the internal parts of the Demised Premises previously so treated respectively (excluding the external part of the Building which shall be the Landlord’s responsibility)’
		•	the making good of any damage or disfigurement caused to walls, doors, windows, floor, ceiling boards or any part of the Demised Premises;
		•	the making good or replacement of damaged wires, conduits, piping, air-conditioned ducting and all other apparatus, fixtures and fittings supplied by the Landlord where applicable;
		•	the removal of any signboards, nameplates, advertisements or notices and all carpeting, tiling, partitions, additions, improvements, fixtures and fittings belonging to the Tenant whether within or outside the Demised Premises;
		•	the removal and clearing of all waste, rubbish and other unwanted material from the Demised Premises;
		•	the making good to the reasonable satisfaction of the Landlord of all damage to the Demised Premises and the Building resulting from the removal of the Tenant’s belongings, reinstatement or repair of the Demised Premises; and
		•	the removal from the Demised Premises of all additions, improvements, fixtures and fittings installed by the Tenant and all notices, notice boards and signs bearing the name of or otherwise relating to the Tenant (including in this context any persons deriving title to the Demised Premises under the Tenant) or its business.
l.	Not to make or permit to be made any structural alterations to the said premises.			NO UNAUTHORISED ALTERATION

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m.	Not to use the said premises or any part thereof other than a warehouse/ factory/ office in connection with and for the purpose of the Tenant’s business and to obtain licenses and permits at the Tenant’s expense from the relevant authorities where necessary.	PURPOSE OF USE
n.	Not to exceed the maximum electricity load and not to load or permit to be loaded on any part of the floors of the said premises weights exceeding those specified by the Landlord, Management Corporation or other bodies (where applicable).	ELECTRICAL LOADING UNIT
o.	Not to assign sublet or part with the possession of the said premises or any part thereof without the written consent of the Landlord which consent shall not be unreasonably withheld in the case of a respectable and responsible tenant. In the event if the Landlord shall enter into an agreement to assign all rental proceeds to RBC, the Landlord shall notify the Tenant of the said assignment to comply.	NO ASSIGNMENT OR SUBLET
p.	Not to keep or permit to be kept on the said premises or any part thereof any materials of a dangerous or explosive nature or the keeping of which may contravene any statute or subsidiary legislation,	NO DANGEROUS MATERIALS
q.	If the Tenant continues to occupy the Demised Premises beyond the expiration or earlier determination of the Term or fails to deliver vacant possession of the Demised Premises to the Landlord after the expiration or earlier determination of the Term, the Tenant shall pay to the Landlord for every month or part thereof of such holding over double the amount of Rent and such holding over shall not constitute a renewal of this Lease. During such holding over all provisions of this Lease with necessary changes shall apply. The inclusion of this clause shall not be construed as the Landlord’s consent for the Tenant to hold over.	HOLDING OVER
r.	The Tenant shall not, except where approved by the Authorities, use the Demised Premises or any part thereof or permit the same to be used for the cooking or the preparation of food nor to permit or suffer any one to sleep or reside therein but shall keep the Demised Premises securely fastened and locked at all times when it is unattended.	NO COOKING OR SLEEPING
s.	The Tenant shall not cause or permit any odours or smells to be produced or to permeate or emanate from the Building and/or the Demised Premises which exceeds the permissible standards set by the Authorities. The Tenant shall take necessary measures to ensure proper ventilation and to prevent smoke, fumes or unpleasant odours and/or	NOT TO CAUSE ANY ODOURS AND FUMES

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	leakage of any substances or materials from and into the Demised Premises and in the event that the Tenant fails to do so the Landlord may without prior notice to the Tenant take all such measures as it deems necessary to remedy this breach and all costs and expenses incurred by the Landlord shall solely borne by the Tenant and paid forthwith. All such costs and expenses so incurred by the Landlord together with interest from the date of expenditure until the date they are paid by the Tenant to the Landlord shall be recoverable from the Tenant as if they were rent in arrears.
t.	The Tenant shall not keep, permit or suffer to be kept any animals (except fishes), reptiles, birds, insects, pests, vermin or other livestock whatsoever in or about the Demised Premises and shall take all reasonable precautions to keep the Demised Premises free of rodents, insects and other pests.	NO ANIMALS
u.	The Tenant shall not without the prior written consent of the Landlord at any time load or permit or suffer to be loaded any part of the floors of the Demised Premises to a weight greater than the permissible load limits prescribed in the relevant building plans or approved by the Authorities for the respective floors (or such other weight as may be reasonably prescribed by the Landlord) and shall when required by the Landlord distribute any load on any part of the floor of the Demised Premises in accordance with the directions and requirements of the Landlord, and in the interpretation and application of the provisions of this clause relating to loading requirements the decision of the surveyor or engineer or architect of the Landlord shall be final and binding upon the Tenant. The fees of any architect, engineer or other consultant employed by the Landlord for the purpose of considering, approving and supervising any load exceeding the permissible load limits or when such loads cannot be determined and all costs and expenses incurred by the Landlord in connection therewith shall be borne by the Tenant and paid forthwith upon notice being given by the Landlord to the Tenant. All costs and expenses so incurred by the Landlord together with Interest from the date of notice until the date they are paid by the Tenant to the Landlord, shall be recoverable from the Tenant as if they were rent in arrears.	NO OVERLOADING
v.	The Tenant shall not advertise the Tenant’s business or participate in any form of publicity or promotion which the Landlord in its reasonable discretion considers detrimental to the Property.	NO ADVERSE PUBLICITY
w.	To keep at all times during the Term and during any period of holding	INSURANCE

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	over an adequate public liability insurance with an insurance company approved by the Landlord, in respect of the demised premises for an amount not less than Singapore Dollars Two Million (S$2,000,000) and deliver to us a copy of the said insurance policy within fourteen (14) days from the date of executing this Lease Agreement.
x.	Not to do or permit to be done anything whereby the policy or policies of insurance on the said premises against damage by fire may become void or voidable or whereby the premium thereon may be increased.	NOT TO VOID INSURANCE
y.	Not to use the demised premises or any part thereof for any unlawful or immoral purposes and not to do or permit or suffer to be done upon the demised premises any act or thing which may become a nuisance to or annoyance to or give cause for reasonable complaints from the occupants of other parts of the Building or of adjoining or adjacent properties.	NO ILLEGAL / IMMORAL USE AND NOT TO CAUSE NUISANCE
z.	To be responsible for and to indemnify the Landlord from and against all claims and demands and against damage occasioned to the demised premises or any adjacent or neighbouring premises or injury caused to any person by any act default or negligence of the Tenant or the servants, agents, licensees or invitees of the Tenant.	TO INDEMNIFY LANDLORD
aa.	Not to obstruct, or cause or suffer to be obstructed the hall lobby staircases landings and passages leading to the demised premises.	NO OBSTRUCTION
bb.	To apply for and obtain all necessary permits/licences etc from the relevant authorities for the use of the said premises for their trade.	LICENCE/PERMIT FOR USE OF PREMISES
cc.	Subject to prior written approval of the Landlord and to all approvals being obtained by the Tenant from the relevant authorities, the Tenant may in accordance with the provisions of the Lease carry out within the Premises at the Tenant’s own cost and expense all fitting out works which are not provided by the Landlord. The Tenant shall comply with the guidelines, terms and conditions set out in the Tenant’s Fitting Out Brief.	FITTING OUT WORKS
dd.	The Tenant shall place a fitting out deposit of S$3,000.00 with the Landlord prior to proceeding with any fitting out works at the Premises any time during the Lease Term. The fitting out deposit shall be held by the Landlord as security for making good any damage to the Premises and the Building and for due compliance by the Tenant of the	FITTING OUT DEPOSIT

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		provisions of the Tenant’s Fitting Out Brief and the Lease. The fitting out deposit shall be refunded to the Tenant free of interest and less sums as are payable to the Landlord within one (1) month after the Tenant shall have carried out and completed its fitting out works in accordance with the terms set out in the Tenant’s Fitting Out Brief and the Lease.
	ee.	To pay for the sublet consent fee chargeable by the Housing & Development Board for the approval of this Lease.	SUBLETTING FEE
	gg.	Without prejudice to rights of the Landlord at law and in equity, in the purports to terminate this lease for any reason prior to the expiry of the term, the landlord shall be entitled to receive from the tenant the amount equivalent to rent and service charge as if the tenant had not terminated the lease. Provided nothing herein shall be construed to impose or imply any obligation on the landlord to accept the Tenant’s purported termination of this Lease or unless.	PRE-TERMINATION OF LEASE
	hh.	If HDB, at any time before the expiry of this Lease term terminates the lease as a result of the Tenant’s default, the landlord shall upon the Landlord’s receipt of the HDB Termination Notice, give written notice to the Tenant. On (i) the expiry date of the HDB Termination Notice or (ii) two (2) months from the date of notice, whichever date is the earliest, the Term and this lease will end without affecting the rights of the Landlord against the Tenant for any previous default by the Tenant arising out of or in connection with this Lease, and without HDB or the Landlord being liable for any inconvenience, loss, damage, cost, expense or compensation in connection with the termination of this lease.	TERMINATION BY HDB
3.	The Landlord hereby agrees with the Tenant as follows:
	(a)	To pay all rates, taxes, maintenance charges and any surcharges thereon, assessments and outgoing (except as otherwise provided in this Agreement) which are or may hereafter be charged or imposed on the said premises including any surcharges payable thereon.	PAYMENT OF TAXES
	(b)	To insure the said premises against loss or damage by fire and to pay	INSURANCE

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		all premium thereon.
	(c)	To maintain the structural condition of the said premises including sanitary pipes and to keep the roof of the said premises in good and tenantable repair and condition.	STRUCTURAL MAINTENANCE
	(d)	That the Tenant paying the rent hereby reserved, observing and performing the several conditions, covenants and stipulations on the Tenant’s part herein contained shall peaceably hold and enjoy the said premises during this tenancy without any interruption by the Landlord or any person rightfully claiming under or in trust for the Landlord.	QUIET POSSESSION / ENJOYMENT
	(e)	To provide by all reasonable means of central air-conditioning (excluding Tenant’s own air-conditioning equipment) for the hours of 0800 to 1800 from Mondays to Fridays only except on Public Holidays and from 0800 to 1300 on Saturdays only except on Public Holidays. If requested by Tenant, the operating hours can be extended at a rate chargeable to the Tenant.	PROVISION OF CENTRAL AIR- CONDITIONING
4.	Provided always and it is expressly agreed as follows:
	(a)	If the rent hereby reserved shall not be paid for seven (7) days after its due, a written notice shall be issued. In the event the rent remains unpaid for twenty one (21) days from the date of written notice or if there shall be a breach of any of the conditions, covenants or stipulations on the part of the Tenant herein contained, the Landlord shall be entitled to re-enter upon the said premises and thereupon this tenancy shall immediately absolutely determine but without prejudice to any right of action of the Landlord for damage or otherwise in respect of any such breach or any antecedent breach.	DEFAULT OF TENANT
	(b)	In the event the rent remaining unpaid seven (7) days after becoming payable (whether formally demanded or not), it shall be lawful for the Landlord to claim interest at ten percent (10%) per annum on the amount unpaid calculated from after the date due to the date of actual payment.	RENT IN ARREARS
	(c)	The Landlord shall not be liable to the Tenant or the Tenant’s servants or agents or other persons in the said premises or persons calling upon the Tenant for any accidents happening, injury suffers damage to or loss of any chattel property sustained on the said premises.	LIMITED LIABILITY OF LANDLORD

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(d)	In case the said premises or any part thereof shall at any time during this tenancy be destroyed or damaged by fire lightning riot explosion or any other cause beyond the control of the parties hereto so as to be unfit for occupation and use, then and in every such case (unless the insurance money shall be wholly or partially irrecoverable by reason solely or in part of any act, default, neglect or omission of the Tenant or any of their servants agents occupiers guests or visitors), the rent hereby reserved or a just and fair proportion thereof according to the nature and extent of the destruction or damage sustained shall be suspended and cease to be payable in respect of any period while the said premises shall continue to be unfit for occupation and use by reason of such destruction or damage.	UNTENANTABILITY LEADING TO SUSPENSION OF RENT
(e)	In case the said premises shall be destroyed or damaged as aforesaid, either party shall be at liberty by notice in writing to the other determine this tenancy, and upon such notice being given, this tenancy or the balance thereof shall absolutely cease and determine and the deposit paid hereunder together with a reasonable proportion of such advance rent as has been paid hereunder, where applicable, shall be refunded to the Tenant forthwith but without prejudice to any right of action of either party in respect of any antecedent breach of this Agreement by the other.	UNTENANTABILITY LEADING TO TERMINATION OF LEASE
(f)	The Landlord shall on the written request of the Tenant made not less than three (3) months before the date of expiry of this tenancy, and if there shall not at the time of such request be any existing breach or any non-observance of any of the conditions, covenants or stipulations on the part of the Tenant herein contained, allow the Tenant to negotiate for a renewal tenancy of the said premises for a new term from the date of expiry of this tenancy at a rent to be agreed based on the prevailing market rent and agree to the new terms and conditions of the lease with the party who will be the Landlord on 25 July 2013.	RENEWAL CLAUSE
(g)	The Tenant shall be allocated seven (7) car parking lots without charge. Subject to availability, any additional lots shall be charged at a rate of S$100.00 per lot per month, subject to applicable GST. Subject to availability, in respect of any allocation by the Landlord to the Tenant of car parking and lorry parking lots and loading / unloading areas, the Landlord reserves the right to revise the allocation of number of lots and the charges from time to time at their total discretion.	CAR PARKING / LORRY PARKING & LOADING / UNLOADING AREAS

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(h)	Any notice served under or in any way in connection with this Agreement shall be sufficiently served on the Tenant if left at the said premises or delivered to the Tenant personally or sent to the Tenant at the said premises by registered post and shall be sufficiently served on the Landlord if delivered to the Landlord personally or sent to the abovementioned address by registered post. Any notice sent by registered post shall be deemed to be given at the time when in due course of post it would be delivered at the address to which it is sent.	NOTICE
(i)	The waiver by either party of a breach of default of any of the provisions in this Agreement shall not be construed as a waiver of any succeeding breach of the same or other provisions nor any delay or omission on the part of either party to exercise or avail itself of any right that it has or may have herein, operates as a waiver of any breach or default of the other party.	WAIVER OF DEFAULTS
(J)	The stamp duty for stamping this Agreement in duplicate and any legal cost shall be borne by the Tenant and shall be paid on the date of signing of this Agreement.	STAMP DUTY & LEGAL COST
(k)	This Agreement shall be subject to the laws of the Republic of Singapore.	GOVERNING LAW
IN WITNESS WHEREOF the parties have hereunto set their hands the day and year first above written.

SIGNED by the Landlord (With Company stamp affixed where applicable) Name: Seizaburo Kawaguchi, CEO	) ) )
In the presence of:	)
Name: Lee Choi Yin, Senior Finance Manager	)
	)
SIGNED by the Tenant (With Company stamp affixed where applicable) Name: Dennis Rutherford, VP Sales & Marketing	) ) )
In the presence of:	)
Name: Chen Chuanqi, Director of Engineering & Operations	) )

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Application for Subletting

Please complete the Application Form and submit it with the necessary documents

Important Note

1.	All subletting applications/renewals should be submitted 2 weeks before subletting term commencement date together with the subtenant’s ACRA printout, subtenancy agreement and PDD clearance, if required.
2.	All reference to “Landlord” in this application form shall refer to RBC Dexia Trust Services Singapore Limited as trustee of Cambridge Industrial Trust.
3.	All reference to “JTC” in this application form shall refer to JTC Corporation and all reference to “HDB” shall refer to Housing and Development Board.

Part A - Declaration by Tenant and Subtenant

By Tenant and Subtenant

In consideration of you applying to JTC/HDB for their approval of the subletting arrangement(s) in respect of the property and giving certain declarations and undertakings to JTC/HDB in connection with such application(s), each of us hereby jointly, severally, irrevocably and unconditionally:

(a)	Declare that all the information stated in this form is complete, true, and accurate in all respects, and that we shall forthwith disclose to you in writing any fact, matter or circumstance, which may render any such information incomplete, untrue, inaccurate or misleading in any respect. For the avoidance of doubt, we agree and acknowledge that you are under no obligation whatsoever to ascertain or verify the completeness, truth or accuracy of the information, and that you are reliant on us for the provision of the information and the completeness, truth and accuracy in respect thereof without further query or verification.
(b)	Undertake to comply and/or or procure compliance by the subtenants (as the case may be) of all the terms and conditions for subletting as may be set or prescribed by JTC/HDB from time to time (the “JTC/HDB Terms and Conditions”); and fully indemnify and/or hold you harmless against all proceedings, costs (including all legal costs whatsoever), expenses, claims, actions, demands, losses, damages, penalties and liabilities arising or which may arise out of or in relation to or in connection with or by reason of, whether directly or indirectly, the incompleteness, inaccuracy or otherwise of the information, and the failure by you and/or any subtenant to comply with the JTC/HDB Terms and Conditions.
(c)	Undertake to ensure that all government agency clearances in relation or incidental to or in connection with the subtenants’ operations are obtained prior to the commencement of such operations.

For and on behalf of (Tenant’s name)	Nidec Component Technology Co., Ltd	For and on behalf of (Subtenant’s name)	CyberOptics (S) Pte Ltd.
Name of Applicant	James Pang Joo Tzuan	Name of Applicant	Dennis Rutherford
Signature / Date	27/9/10	Signature / Date	12/10/2010
Designation/ Company’s Stamp	Manager, General Affairs	Designation/ Company’s Stamp	VP Sales & Mktg

  Part B - Subletting Details (To be completed by the Tenant)

  Particulars of Tenant

  Company Name Nidec Component Technology Co., Ltd

  Allocation Number   Product Type
  (e.g. Land or multi-tenanted)

  Site Address        21 Ubi Road 1

  Land Area sqm

  Gross
  sqm Floor
202770 sf Area (GFA)
(18886.92 sqm)   Maximum Sublet Area (% of GFA) %

  Particulars of Subtenant

  New Subtenant? O Yes Æ No

Subtenant Name	CyberOptics (Singapore) Private Limited
Contact Person	Dennis Rutherford
Contact Address	21 Ubi Road 1, # 02-01 S 408724

  Contact Telephone 67443021   Contact Facsimile 68445331

Contact Email	drutherford@cyberoptics.com
Subtenant Usage	For high tech inspection of automated optical inspection system equipment, research development and final assembly only.

Is subtenant a joint venture company?		Is subtenant operating in the
(if yes, pls provide supporting	O Yes Æ No	form of a sole proprietorship	O Yes Æ No
documents on joint venture)		or a partnership?

  Sublet start date       15^th May 2011   Sublet end date       24^th July 2013

Sublet GFA:	a) Predominant use (e.g. production/servicing):	1114.8	sqm
	b) Supporting use (e.g. ancillary office, showroom):	743.2	sqm
	Total sublet GFA	1858	sqm

Sublet Rent Collected       $38,000 X 12	$     456,000	per annum
Charges for furniture and other services rendered	$     NA	per annum

  Percentage of Shareholding relationship between lessee/tenant and subtenant (if any)?       NA      %

CITM-AssetManagement-160806 Page 2 of 3

Part C - Subletting Checklist

1.			Æ Yes  O No  O NA
		Has PDD clearance been obtained for the proposed subtenant’s usage ? (Please tick NA if the subtenant’s usage falls under Annex D in JTC/HDB’s Subletting Handbook)
		For Business Parks Premises
2.
		Is the subtenant’s usage within the list of allowable activities of Business Parks in Annex C in JTC/HDB’s Subletting Handbook? (Please tick NA if you are not in JTC/HDB’s Business Parks Premises)	O Yes  O No  Æ  NA
		For subletting to Third Party Logistics Warehousing activities
3.
		If you are subletting to third party logistics warehousing activities, are you currently permitted to use the premises for third-party warehousing? (Please tick NA if you are not subletting to third party logistic warehouse activities)	O Yes  O No  Æ  NA
4.		Do you and your subtenant comply with the Urban Redevelopment Authority’s 60:40 rule?	Æ Yes  O No
	Note: If the answer is ‘No’ to Q2, please note that a PDD clearance must be obtained first.

	Part D - Mode of Payment
A monthly subletting fee shall be payable to JTC/HDB by the Landlord upon JTC’s/HDB’s approval of this application. This monthly subletting fee will be reimbursed by the tenant to the Landlord together with the monthly rent via Interbank GIRO (IBG).

CITM-AssetManagement-160806 Page 3 of 3

EX-31.1

EXHIBIT 31.1

I, Kathleen P. Iverson, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of CyberOptics Corporation.
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2010
	/s/ Kathleen P. Iverson
	Signature
	Name: Kathleen P. Iverson
	Title: Chief Executive Officer and Chair

31

EX-31.2

EXHIBIT 31.2

I, Jeffrey A. Bertelsen, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of CyberOptics Corporation.
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2010
	/s/ Jeffrey A. Bertelsen
	Signature
	Name: Jeffrey A. Bertelsen
	Title: Chief Financial Officer

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EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

          In connection with the Quarterly Report of CyberOptics Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2010 as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), the undersigned, Kathleen P. Iverson, Chief Executive Officer, and Jeffrey A. Bertelsen, Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Kathleen P. Iverson

Kathleen P. Iverson

Chief Executive Officer

November 8, 2010

/s/ Jeffrey A. Bertelsen

Jeffrey A. Bertelsen

Chief Financial Officer

November 8, 2010

END OF FILING

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