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 March 31, 2004

[   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ________________ to ________________

Commission file number 0-16577

CYBEROPTICS CORPORATION

(Exact name of registrant as specified in its charter)

5900 Golden Hills Drive, Minneapolis, Minnesota 55416
(Address of principal executive offices)

(763) 542-5000
(Issuer's telephone number)

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 ___

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ___ 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 May 14, 2004, there were 8,482,869 shares of the registrant's Common Stock, no par value, issued and outstanding.

PART I. FINANCIAL INFORMATION

CYBEROPTICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)

SEE THE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.

CYBEROPTICS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)

SEE THE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.

CYBEROPTICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

SEE THE ACCOMPANYING NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS.

CYBEROPTICS CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. INTERIM REPORTING:

The interim consolidated financial statements presented herein as of March 31, 2004, and for the three month periods ended March 31, 2004 and 2003, are unaudited; however, in our opinion, the interim consolidated financial statements 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 month period ended March 31, 2004, do not necessarily indicate the results to be expected for the full year. The December 31, 2003, consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by generally accepted accounting principles. These unaudited interim consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto, contained in our Annual Report on Form 10-K for the year ended December 31, 2003.

2. ACCOUNTING FOR STOCK-BASED COMPENSATION:

In December 2002, the Financial Accounting Standards Board issued SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure — an amendment of FASB Statement No. 123”. We intend to continue to account for stock-based compensation to our employees and directors using the intrinsic value method prescribed by APB Opinion No. 25. We have adopted the disclosure requirements of SFAS No. 148 in these notes to the consolidated financial statements.

As permitted by SFAS No. 123, “Accounting for Stock Based Compensation”, we continue to measure compensation cost for our stock incentive and option plans using the intrinsic value method of accounting. Had we used the fair value method of accounting for our stock option and incentive plans and charged compensation costs against income over the vesting period, net income and net income per share for the three months ended March 31, 2004 and 2003 would have been reduced to the following pro forma amounts (In thousands):

No tax benefit provision was applied to the fair value expense calculated under SFAS No. 123 due to establishing valuation allowances on deferred tax assets during the three month period ended September 30, 2002. The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and our experience.

3. CERTAIN BALANCE SHEET COMPONENTS (IN THOUSANDS):

Inventories consisted of the following:

Intangible and other assets include the following:

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

4. GEOGRAPHIC REVENUE INFORMATION:

Export sales for the three months ended March 31, 2004 and the three months ended March 31, 2003 amounted to 81% and 75% of revenues, respectively. All or our export sales are negotiated, invoiced and paid in U.S. dollars. Export sales by geographic area are summarized as follows (In thousands):

5. NET INCOME (LOSS) PER SHARE:

Basic net income (loss) per share has been computed using the weighted average number of shares outstanding during the period presented. The diluted net income per share includes the effect of common stock equivalents for each period. The number of shares utilized in the denominator of the diluted net income per share computation has been increased from the number of shares used in computing basic net income per share by 371,000 equivalent shares for the three months ended March 31, 2004. The shares used in the basic and diluted net (loss) per share computation for the three months ended March 31, 2003 are the same, as additional shares in the denominator would be anti-dilutive due to our net loss. Weighted average shares for which the option price exceeds the average market price were 336,000 and 1,572,000 for the three month periods ended March 31, 2004 and 2003, respectively.

6. COMPREHENSIVE INCOME (LOSS):

Statement of Financial Accounting Standards No. 130 requires that unrealized gains and losses on our available-for-sale marketable securities and certain foreign currency translation adjustments be included as a component of other comprehensive income.

During the three month periods ended March 31, 2004 and 2003, total comprehensive income (loss) amounted to $2,638,000 and ($1,490,000), respectively. Accumulated other comprehensive loss at March 31, 2004 and December 31, 2003 was ($474,000) and ($426,000), respectively.

6. INCOME TAXES:

In the third quarter of fiscal 2002, we recorded a full valuation allowance against our deferred tax assets. Our decision to record this valuation allowance was based on the cumulative losses we had incurred over the three years prior to that date, the fact that we were continuing to generate operating losses and that we fully utilized our loss carryback potential in 2002. From the third quarter of fiscal 2002 to date, we have continued to provide a full valuation allowance against all future tax benefits produced by our operating results. We assess the realizability of our deferred tax assets and the need for this valuation allowance based on Statement of Financial Accounting Standards No. 109. We expect to continue to provide a full valuation allowance (financial statements will not reflect a tax provision on U.S. based income or benefit on U.S. based losses) until we can sustain a level of profitability that demonstrates our ability to utilize these assets. At that time, the valuation allowance will be reassessed, and could be eliminated, resulting in recognition of deferred taxes. We will continue to record a tax provision related to foreign operating results.

During the three month periods ended March 31, 2004 and 2003, we have continued to provide a full valuation allowance against future tax provisions and benefits produced by our U.S. based operating results. Tax expense of $25,000 and $60,000 recorded during the three months ended March 31, 2004 and 2003 relates to income generated by foreign subsidiaries.

7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:

We enter into foreign currency swap agreements to hedge short term inter-company financing transactions with our subsidiary in the United Kingdom. These currency swap agreements are structured to mature on the last day of each quarter and are designated as cash flow hedges. At March 31, 2004, CyberOptics had one open swap agreement that was purchased on that date. As a result, there were no material unrealized gains or losses as of March 31, 2004. During the three months ended March 31, 2004 we recognized a net loss of approximately $159,000 from the settlement of foreign currency swap agreements which offset the approximately $185,000 translation gain on the underlying inter-company balance.

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

8. RESTRUCTURING AND SEVERANCE:

In January 2003, we incurred approximately $170,000 of severance costs and facility costs associated with further consolidation of our semiconductor product group from Redwood City, California to Portland, Oregon. Severance costs were associated with a workforce reduction of 5 people. Substantially all of these costs were paid as of March 31, 2003.

During 2002 and 2003 we implemented a series of workforce reductions, closed our facilities in California, downsized other facilities and made other reductions in discretionary spending designed to reduce our overall fixed cost structure. The following table reports the activity and ending balance related to accruals established for these restructuring actions (In thousands).

We expect cash to be paid for employee termination costs by September 30, 2004. Cash payments for lease termination costs are expected to be made through the term of our lease, which expires in May 2006.

9. TECHNOLOGY TRANSFER AND LICENSE AGREEMENT:

In March 2003, we transferred to the Optical Gaging Products Division of Quality Vision International, Inc. (QVI) the rights and technology necessary to manufacture our Digital Range Sensors (DRS). In addition, we granted QVI a non-exclusive license to the intellectual property associated with this product line and sold a portion of our inventory as part of this transaction. QVI had been the primary customer for DRS sensors prior to this agreement as part of a separate 1999 agreement. As part of the agreement, QVI paid a one-time technology transfer fee and a pre-paid non-refundable royalty fee covering a specified number of sensors built by OGP for a period of five years from the effective date of the contract. As a result of this transaction, we recorded a $645,000 gain in the three month period ended March 31, 2003.

10. RECENT ACCOUNTING DEVELOPMENTS:

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities”. This interpretation addresses the requirements for business enterprises to consolidate related entities in which they are determined to be the primary beneficiary as a result of their variable economic interests. The interpretation is intended to provide guidance in judging multiple economic interests in an entity and in determining the primary beneficiary. The interpretation outlines disclosure requirements for Variable Interest Entities in existence prior to January 31, 2003 and outlines consolidation requirements for Variable Interest Entities created after January 31, 2003. We do not have investments or relationships with third parties subject to the requirements of this interpretation.

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS:

The following is management’s discussion and analysis of certain significant factors that have affected our results and financial position during the periods included in the accompanying financial statements or that could have an impact on future results. This discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2003 and our interim consolidated financial statements and associated notes.

The following Management’s Discussion and Analysis contains “forward looking statements”within the meaning of federal securities laws which represent our expectations or beliefs relating to future events, including statements regarding trends in the industries in which we function, levels of orders, research and development expenses, taxation levels, the sufficiency of cash to meet operating and capital expenses and the ability to continue to price foreign transactions in U.S. currency. Our actual results may vary from these expectations because of a number of factors that affect our business, the most important of which include the following:

CRITICAL ACCOUNTING POLICIES AND ESTIMATES:

The preparation of the financial information contained in this Form 10-Q requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate these estimates on an ongoing basis, including those related to allowances for doubtful accounts, for warranty expense, and for obsolete inventory, the carrying value and any impairment of intangible assets, and the valuation allowance for deferred tax assets. These critical accounting policies are discussed in more detail in the Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Form 10-K for the year ended December 31, 2003.

RESULTS OF OPERATIONS:

General

Consistent with the strength of the recovery in the global electronics market, all components of our operations performed at a higher level in the quarter ended March 31, 2004. Sales of electronic assembly sensors to OEMs of robotic assembly equipment grew significantly, and revenues from shipments of SMT inspection systems primarily to Asian outsourcing manufacturers exceeded planned levels. In addition, we experienced sales growth in our semiconductor products, particularly in the area of reflective wafer mapping sensors. Overall, our revenues increased 98% in the quarter ended March 31, 2004 compared to the same quarter in 2003, and our earnings, which benefited from the streamlined cost structure established through several work reductions and restructuring over the past few years, increased from a net loss of $1.5 million in the first quarter of 2003 to net income of $2.7 million in 2004.

Revenues

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

Our revenues from EAS products increased 186% during the three months ended March 31, 2004 from the three months ended March 31, 2003 and also reflect a 30% increase from revenue levels during the quarter ended December 31, 2003. These increased revenues reflect increased order rates from our two largest EAS customers. During the three months ended March 31, 2004, revenues from EAS products, primarily LaserAlign sensors, were positively impacted by improved market conditions in the worldwide market for SMT capital equipment and the introduction of two new sensors for one of our large OEM customers. These sensors were designed for the latest generation pick-and -place machine of this customer, which was introduced during 2003. The Company’s two largest EAS customers accounted for approximately 50% of total revenues for the three months ended March 31, 2004, and 33% of revenues for the comparable period in 2003. We also generated approximately $480,000 of revenue in the first quarter of 2004 from a last time purchase of Laser Lead Locators, a sensor that we have ceased manufacturing.

Our revenues from sales of semiconductor product increased 39% during the three months ended March 31, 2004 from the three months ended March 31, 2003 and 33% from the quarter ended December 31, 2003. This increase in revenue during 2004 from 2003 is primarily due to improved market conditions in the semiconductor capital equipment market, which began in late 2003. This trend is consistent with the growth in the overall electronics capital equipment market and resulted in increased sales of our wafer mapping products, which represented approximately 52% and 26% of semiconductor product sales during the three month period ended March 31, 2004 and 2003, respectively.

Our revenues from sales of end-user systems increased 39% during the three months ended March 31, 2004 from the three months ended March 31, 2003, but decreased 17% from the quarter ended December 31, 2003. These revenue increases are the result of improved market conditions in the SMT capital equipment markets and continued success in selling inspection systems to many of the large manufacturers of circuit boards, particularly in Asia. A large portion of the worldwide production capacity for printed circuit boards is being added in China, and we have been successful in selling inspection systems to new and existing customers in that region. We are planning to open a sales office in China in late 2004 to further pursue opportunities in that market. Also, during the fourth quarter of 2003 and the first quarter of 2004, we shipped SE 300systems for a large order that has not been reflected in revenue due to pending customer acceptance and we also recently received a sizable order for our KS line of automated optical inspection systems. We expect to recognize revenue for these systems in the third quarter of 2004.

International revenues comprised approximately 81% and 75% of total revenues during the three month periods ended March 31, 2004 and 2003, respectively. The international markets in Asia, Japan and Europe account for a significant portion of the capital equipment market for the manufacture of electronics, the primary market for our EAS sensors and End-User systems product lines. Revenues generated from products used primarily for SMT electronic assembly production (revenues from OEM sensors and End-User systems) were approximately 85% and 78% of revenues for the three month periods ended March 31, 2004 and 2003, respectively.

Gross Margin

Gross margin for the three months ended March 31, 2004 increased as a percent of revenues to 58% compared to 45% during the three months ended March 31, 2003. Gross margin is highly dependent on the level of revenues and resulting production levels over which to spread fixed manufacturing costs such as facilities and other compensation and non-compensation expenses that do not vary with activity levels. In addition, with higher production volumes, manufacturing processes become more efficient and reduce the overall cost of producing products for sale. Revenue levels were 98% higher in the three month period ended March 31, 2004 than during the same period in 2003, and consequently, gross margins were favorably impacted. In addition, increased revenues from EAS sensors and semiconductor products, which carry higher margins than systems products, and revenues from the last time purchase of a high margin sensor in the three months ended March 31, 2004 contributed to higher gross margins. We expect that strong sales of EAS sensors and strong overall revenue will allow us to maintain margin levels at least through the second quarter of 2004.

Research and Development

Research and development expenses increased 1% to $1.8 million during the three months ended March 31, 2004 from the three months ended March 31, 2003. As a percentage of revenue, research and development expenses decreased to 14% during the three months ended March 31, 2004 from 27% during the comparable period in 2003. As a percentage of revenue, the level of investment in research and development expense was maintained at a relatively high level during 2002 and 2003, as we continued to fund new product development on important new products even as revenues levels declined. The dollar investment in research and development has remained relatively constant on a quarterly basis during 2003 and the first quarter of 2004, which we expect to continue for 2004. However, we will continue to evaluate new investment opportunities and could decide to increase research and development investment levels in order to accelerate completion of current projects and or add new product development initiatives to those currently planned.

Research and development expenses during the three months ended March 31, 2004 were primarily focused on initial development activities for several new sensor products, including the new Embedded Process Verification sensor family (EPV), continued development of the SE and KS series inspection systems, next generation LaserAlign products and other new sensors for the SMT and Semiconductor markets. Customer funded research and development is recognized as a reduction of research and development expense. During the three months ended March 31, 2004, there was no customer funded research and development recognized as a reduction of research and development expense compared to $14,000 during the three months ended March 31, 2003.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased 2% to $2.8 million during the three month period ended March 31, 2004 compared to the three months ended March 31, 2003. As a percentage of revenue, selling, general and administrative expenses decreased to 22% during the three month period ended March 31, 2004 from 43% in 2003. The increase in selling, general and administrative expense is primarily the result of additional investments in sales and marketing, primarily in Asia, and other variable costs associated with supporting a growing revenue base, offset somewhat by cost reduction measures implemented during the third quarter of 2003.

Restructuring and Severance Costs

During 2001, 2002 and 2003, we have implemented a series of workforce reductions, closed our facility in California, downsized other facilities and made other reductions in discretionary spending designed to reduce our overall fixed cost structure. In January 2003, we incurred approximately $170,000 of severance costs and facility closure costs associated with further consolidation of our semiconductor product group from Redwood City, California to Portland, Oregon. Severance costs were associated with a workforce reduction of 5 people. Substantially all of these costs were paid as of March 31, 2003.

Gain from Technology Transfer and License

In March 2003, we transferred to the Optical Gaging Products Division of Quality Vision International, Inc. (QVI) the rights and technology necessary to manufacture our Digital Range Sensors (DRS). In addition, we granted QVI a non-exclusive license to the intellectual property associated with this product line and sold a portion of our inventory as part of this transaction. QVI had been the primary customer for DRS sensors prior to this agreement as part of a separate 1999 agreement. As part of the agreement, QVI paid a one-time technology transfer fee and a pre-paid non-refundable royalty fee covering a specified number of sensors built by OGP for a period of five years from the effective date of the contract. As a result of this transaction, we recorded a $645,000 gain in the three month period ended March 31, 2003.

Amortization of Goodwill and Intangible Assets

Amortization of acquired intangible assets was approximately $230,000 during the three month periods ended March 31, 2004 compared to approximately $280,000 during the three month period ended March 31, 2003. The decrease in amortization during the first three months of 2004 compared to the same period in 2003 was due to the acceleration of amortization of certain intangible assets established as the result of the acquisition of HAMA Laboratories, Inc. in 1999. The accelerated amortization of $632,000 was recorded in the third quarter of 2003. Amortization is primarily attributable to developed technology, and trademarks resulting from CyberOptics’ acquisition of technology and other assets of Kestra Ltd. and HAMA Laboratories Inc. during the second quarter of 1999 and CyberOptics’acquisition of Imagenation Corporation during the fourth quarter of 2000. Amortization of these acquisition related intangible assets and amortization of patent costs is expected to be approximate $1.1 million in 2004.

Interest and Other

Interest income and other primarily includes interest earned on investments. Interest income remained relatively constant during the three month period ended March 31, 2004 compared to the same period in 2003 as a result of increased investment balances but lower interest rates on invested funds. In addition, during the three months ended March 31, 2003 we incurred foreign currency translation charges and certain other expenses which resulted in reduced interest and other income during this period.

Provision for Income Taxes and Effective Income Tax Rate

In the third quarter of fiscal 2002, we recorded a full valuation allowance against our deferred tax assets. Our decision to record this valuation allowance was based on the cumulative losses we had incurred over the three years prior to that date, the fact that we were continuing to generate operating losses and that we fully utilized our loss carryback potential in 2002. From the third quarter of fiscal 2002 to date, we have continued to provide a full valuation allowance against all future tax benefits produced by our operating results. We assess the realizability of our deferred tax assets and the need for this valuation allowance based on Statement of Financial Accounting Standards No. 109. We expect to continue to provide a full valuation allowance (financial statements will not reflect a tax provision on U.S. based income or benefit on U.S. based losses) until we can sustain a level of profitability that demonstrates our ability to utilize these assets. At that time, the valuation allowance will be reassessed, and could be eliminated, resulting in recognition of the value of deferred taxes. We will continue to record a tax provision related to foreign operating results.

During the three month periods ended March 31, 2004 and 2003, we have continued to provide a full valuation allowance against future tax provisions and benefits produced by our U.S. based operating results. Tax expense of $25,000 and $60,000 recorded during the three months ended March 31, 2004 and 2003 relates to income generated by foreign subsidiaries.

Order Rate and Backlog

Our orders totaled $13.7 million during the three month period ended March 31, 2004 compared to $6.3 million during the three month period ended March 31, 2003. Backlog totaled $7.7 million and $2.6 million at March 31, 2004 and 2003, respectively. The scheduled shipment (or revenue for systems recognized upon acceptance) of the March 31, 2004 backlog is as follows (in thousands):

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents increased by $1.3 million during the three month period ended March 31, 2004, primarily because of $1.8 million of cash generated from operating activities and $1.0 million of cash generated from financing activities, offset by the purchase of $1.4 million of marketable securities, net of maturities of marketable securities, and the purchase of $88,000 of capital assets. Our cash and cash equivalents fluctuate in part because of maturities of marketable securities and investment of cash balances resulting from those maturities, or from other sources of cash, in additional to marketable securities. Accordingly, we believe the combined balances of cash and marketable securities provide a more reliable indication of our available liquidity. Our combined balances of cash and marketable securities increased $2.7 million to $27.5 million as of March 31, 2004 from $24.8 million as of December 31, 2003.

We generated $1.8 million of cash from operations during the three months ended March 31, 2004. Cash generated from operations primarily included net income of $2.7 million, which included $661,000 of non-cash expenses for depreciation and amortization, provision for inventory obsolescence and other non-cash items and increases in accounts payable and accrued expenses of $644,000. This cash generated more than offset investments in accounts receivable of $1.1 million, inventory of $838,000 and other assets of $266,000. Increased investment in accounts receivable and inventory is primarily the result of increased revenue levels in 2004. During the three months ended March 31, 2003, we used $442,000 million of cash from operations, primarily due to a net loss of $1.5 million, which included $938,000 of non-cash expenses and a $645,000 gain from a technology transfer and license. The first three months of 2003 also included $747,000 of net cash generated from changes in operating assets.

We used $1.5 million of cash in investing activities during the three months ended March 31, 2004 compared to $3.5 million during the same period in 2003. Changes in the level of investment in marketable securities resulting from the purchases and maturities of those securities used $1.4 million of cash in 2004 and used $4.1 million of cash in 2003. We used approximately $88,000 and $149,000 of cash for the purchase of fixed assets and the acquisition of technology and other intangible assets during the three months ended March 31, 2004 and 2003, respectively. In addition, during the three months ended March 31, 2003, we generated $750,000 of cash from a technology transfer and license agreement.

We generated $1.0 million of cash from financing activities during the three months ended March 31, 2004 and there was no financing activity in the three months ended March 31, 2003. Cash generated from financing activities represents cash from stock option exercises.

We had no material commitments for capital expenditures as of March 31, 2004. While there were no material commitments, we routinely evaluate investment opportunities that come to our attention and could make a significant commitment in the future. Our cash and cash equivalents and investments totaled $27.5 million at March 31, 2004. With this level of cash and cash equivalents and investments, and the fact that we are generating net profits and cash during 2004, we believe that our cash and cash equivalents and investments will be adequate to fund cash flow needs.

At March 31, 2004, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance of special purpose entities, which would have been established for the purpose of establishing off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

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, 2003. There were no significant changes to our contractual obligations during the three months ended March 31, 2004. Purchase commitments for inventory can vary based on the volume of revenue and resulting inventory requirements.

OTHER FACTORS

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

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

PART II. OTHER INFORMATION

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 timely alerting them to the material information relating to us (or our consolidated subsidiaries) required to be included in the reports we file or submit under the Exchange Act.

b.     During the quarter ended March 31, 2004, 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.

ITEM 6 – EXHIBITS AND REPORTS ON 8-K

a.    Exhibits

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

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

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

b.    Reports on Form 8-K

The following reports on Form 8-K were filed during the quarter ended March 31, 2004.

        –Form 8-K – CyberOptics Corporation published a press release reporting information regarding its preliminary sales results, the level of orders and the anticipated level of restructuring and related charges for the three month period ended December 31, 2003 (1/20/04).

        –Form 8-K – CyberOptics Corporation published a press release reporting its results of operations and financial condition for the three and twelve month periods ended December 31, 2003 and 2002 (2/14/04).

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

Dated: May 17, 2004