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•	Development of new high precision 3D sensors based on our proprietary MRS technology. MRS is a high speed metrology grade 3D measurement technology using commercially available components and proprietary algorithms that solves many of the reflecting issues impacting all triangulation sensor technologies.

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We have significantly advanced our MRS-enabled 3D sensor technology as part of a research initiative aimed at applying our 3D MRS technology to front-end semiconductor inspection. Features of 50 microns, including devices with mirror-like finishes, are now being measured in our research lab, and progress is being made toward measuring sub-50 micron features. This is an important milestone in our effort to make MRS-enabled 3D sensor technology applicable to front-end semiconductor inspection in the next two to four years.

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Continued development of our first 3D AOI system, the SQ3000. This system is designed to expand our presence in markets requiring high precision measurement and inspection. Identifying defects on circuit boards has become highly challenging and critical due to smaller electronics packaging and increasing component density, combined with smaller and more complex solder joints. We believe the combination of our MRS technology and sophisticated 3D fusing algorithms offers microscopic image quality at production speeds. Due to the competitive advantages offered by our MRS technology, we believe the future sales potential of the SQ3000 is significant.

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Continued development of our system for post-singulation inspection of memory modules, the MX600. This system is based on our 2D SIM sensor technology and Ai2 image recognition software. The inspection requirements for this system are similar to AOI requirements for circuit board production. In 2016, we recognized $5.7 million of revenue from sales of this product to one of the world’s top four memory manufacturers. We believe the MX600 system offers superior speed, inspection performance and a low level of false calls.

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We have incorporated our MRS technology into a new 3D scanning system, CyberGage®360, which we believe will serve a wide range of inspection applications in the general purpose 3D metrology market. We sold our first two CyberGage360 units in the fourth quarter of 2016. Most customers are taking longer than originally anticipated to evaluate the functionality and benefits of CyberGage360 before adopting it for their engineering and quality assurance programs. After starting slowly in the first half of 2017, we anticipate steadily increasing sales of CyberGage360 by the end of 2017. We believe that the unique performance characteristics of our MRS technology, which inhibit reflections and enable very accurate measurements at fast speeds, combined with ease of use, will give CyberGage360 a competitive advantage in the marketplace for 3D scanning systems.

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Continued development of our WaferSense/ReticleSense line of products. We recently announced new offerings for advanced particle measurement and a line of multi-purpose sensors that measure leveling, vibration and humidity in an all-in-one wireless real-time device. Humidity measurements are becoming more important as the use of Fin Field Effect Transistor technology increases among semiconductor manufacturers.

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We have recently introduced or are in the process of introducing a number of products based upon our new 3D MRS technology and the failure of this technology to perform up to our expectations would materially adversely affect our anticipated operating results. We believe our MRS technology is unique in the marketplace based upon its ability to inhibit reflections and offer microscopic quality images at production line speeds, and we have high expectations about the prospect for longer-term sales of products based on this technology. We have incorporated the MRS technology into various new products that we have recently introduced, including our 3D AOI offering, the SQ3000, the CyberGage®360 3D scanner and new products for OEM customers, including KLA-Tencor, Nordson-YESTECH and others. We also expect to use this technology in other new products, including next generation inspection systems and in products for new applications. If the performance of the MRS technology does not meet our expectations, if the products we have introduced or are about to introduce based upon the MRS technology do not operate up to specifications, if the market otherwise does not find this technology attractive, or if we are unable to efficiently identify new customers and new applications for this technology given our current sales channels, our operating results for 2017, and our expectations for longer term growth in revenue, would be materially adversely affected.

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Our business has been and will continue to be significantly impacted by the global economy and uncertainty in the outlook for the global economy makes it more likely that our actual results will differ materially from expectations. In 2009, the world economy experienced the worst economic recession since the great depression of the 1930’s. The severe economic conditions were brought about by extreme disruptions in global credit and financial markets, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. These economic uncertainties affect businesses such as ours in a number of ways, making it difficult to accurately forecast and plan our future business activities. Further political instability or uncertainty could cause new tightening of credit in financial markets, may lead consumers and businesses to postpone spending, and may cause our customers to cancel, decrease or delay their existing and future orders with us. In addition, financial difficulties experienced by our suppliers, distributors or customers could result in product delays, increased accounts receivable defaults and inventory challenges. The OEMs and semiconductor manufacturers that purchase our sensors and the circuit board manufacturers and others that purchase our SMT inspection system products are largely dependent on continued demand for consumer and commercial electronics, including smart phones, tablets and computers. Demand for electronics is a function of the health of the economies in the United States and around the world. Sales of our 3D scanning solutions and services are also dependent upon the health of the global economy. Our results would be adversely affected in the future, if these economies were to experience recessions.

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World events beyond our control may affect our operations. Our operations and markets could be negatively affected by world events that effect economies and commerce in the specific countries, such as China, Singapore and Japan, in which we do business. Natural disasters, such as the tsunami and earthquake that hit Japan and the floods that hit Thailand in 2011, have affected travel patterns and accessibility in these countries in the past and other natural occurrences, such as a bird flu outbreak, could affect the business we do in these countries in the future. Terrorist activity or other armed conflicts that could occur in countries in which we do business, labor disputes that impact complex international shipping arrangements, or other unanticipated actions by local populations could affect our ability to do business in specific geographies. Many of the countries in which we do business can be affected by economic forces that are different from the forces that affect the United States and change the amount of business we conduct.

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Our operating results have varied, and will likely continue to vary significantly, from quarter to quarter. Our quarterly operating results have varied in the past and will likely continue to vary significantly from quarter to quarter. Some of the factors that may influence our operating results include the following: changes in customer demand for our sensors, inspection systems and 3D scanning solutions, which is influenced by economic conditions in these industries and the overall health of the global economy; demand for products that use circuit boards and semiconductors; market acceptance of our products and those developed by our customers; competition; seasonal variations in customer demand; the timing, cancellation or delay of customer orders, shipments and acceptances; and product development costs, including increased research, development, engineering and marketing expenses associated with our introduction of new products and product enhancements.

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The markets for capital equipment in the electronics assembly and semiconductor industries in which we operate are cyclical and we cannot predict with precision when market downturns will occur. We operate in cyclical markets–the electronics assembly and semiconductor capital equipment markets–that periodically adjusts independent of global economic conditions. We have been unable to predict with accuracy the timing or magnitude of periodic downturns in this market. These downturns, particularly the severe downturns in electronics production markets from 2001 through 2003, and from 2008 through 2009, severely affected our operations and generated several years of unprofitable operations. Ultimately, we have difficulty determining the duration or severity of any market downturns, the strength of any subsequent recoveries, and the long-term impact that the market may have on our business.

•	Our operating results and financial position could be negatively affected by acquisitions. We may be unable to successfully integrate businesses that we may choose to acquire in the future in a cost-effective and non-disruptive manner. Business acquisitions present a number of risks, including:

•	diversion of management’s attention from daily operational matters, current products and customers;

•	lack of synergy, or the inability to realize expected synergies;

•	failure to commercialize or meet the expected performance of the new technology or business;

•	failure to retain key employees and customer or supplier relationships;

•	lower-than-expected market opportunities or market acceptance of any new products; and

•	unexpected reduction of sales of existing products by new products.

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Sales of SMT and high precision 3D sensors to four OEM customers constituted 26% of our revenue in 2016, and the loss of any of these customers could have a materially adverse impact on our results of operations. Although we anticipate that our future revenue and operations will be less dependent on any particular customer, given recent success with new products based on our high precision 3D MRS sensor technology, and the anticipated future revenue potential of our new CyberGage®360 3D scanning system, if the order rates from these four OEM customers are negatively impacted by global economic events beyond their control or competitive factors, if they choose sensors manufactured by other suppliers, or otherwise terminate their relationships with us, our results of operations could be adversely affected.

•	We generate over 80% of our revenue from export sales that are subject to risks of international operations. Our export sales are subject to many of the risks of international operations, including:

•	currency controls and fluctuations in currency exchange rates;

•	changes in local market business requirements and increased cost and development time required to modify and translate our products for local markets;

•	inability to recruit qualified personnel in a specific country or region;

•	difficulty in establishing and maintaining relationships with local vendors;

•	differing foreign technical standards;

•	differing regulatory requirements;

•	export restrictions and controls, tariffs and other trade barriers;

•	reduced protection for intellectual property rights;

•	changes in political and economic conditions;

•	potentially adverse tax assessments; and

•	terrorism, disease, or other events that may affect local economies and access.

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Our development and assembly operations in Singapore, and our sales operations in Asia, are subject to unique risks because of the remote nature of the operations. Our Singapore development and manufacturing operations, and our Asian sales operations, present a number of risks related to the retention of personnel, management of product development and operations, management and access to customer and distributor interactions, control over administrative and business processes, regulatory and legal issues we may encounter and other matters relating to foreign operations. We cannot be certain that we will be able to retain software development and management personnel in Singapore, and sales personnel in other territories, who are reliable and who will accept employment terms that are attractive. Although most components for our system products are available in Singapore, some of the critical hardware components used in our system products necessary for manufacture in Singapore may be difficult to import at satisfactory prices. Our financial performance, ability to serve our customers and ability to manufacture and sell products could be negatively impacted if we are unable to retain our Asian based employees, if it costs more than expected to retain these employees or hire other experienced employees in a timely manner, if we are unable to manage these employees appropriately, or if we are unable to locate suitable sources of supply for our products manufactured in Asia.

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We price our products in U.S. dollars, and as a result, our products may have difficulty competing in periods of increasing strength of the dollar. Most of our international export sales are negotiated, invoiced and paid in U.S. dollars, and accordingly, currency fluctuations do not affect our revenue per unit. However, significant fluctuations in the value of the U.S. dollar relative to other currencies could have an impact on the price competitiveness of our products relative to foreign competitors, which could impact the willingness of customers to purchase our products and have an impact on our results of operations.

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Because of our significant operations in Singapore, our costs are negatively impacted when the U.S. dollar weakens relative to the Singapore dollar. A significant portion of our cost of revenues, research and development and sales and marketing costs are denominated in the Singapore dollar. In addition, other sales and marketing costs are denominated in British Pounds Sterling and the Chinese Yuan, resulting from our sales offices located in the UK and China. Our costs will increase, and our results will be negatively impacted in future periods, if the U.S. dollar weakens relative to the currencies of these countries. The ultimate impact of any fluctuation in the relationship between the U.S. dollar and the currencies of other geographies is dependent on the level of cash flows denominated in foreign currencies in future periods.

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Our products could become obsolete. Our current products, as well as the products we have under development, are designed to operate with the technology that we believe currently exists or may exist for electronic components, printed circuit boards, memory modules and semiconductor manufacturing markets, and other adjacent markets, including general purpose metrology. The products we develop to meet customer needs and requirements are subject to rapid technological change, and because it takes considerable time to develop new products, we must anticipate industry trends, as well as technological developments, in order to effectively compete. Further, because we do not have unlimited development resources, we might choose to forgo the pursuit of what becomes a leading technology or market and devote our resources to technologies and markets that are less successful. If we incorrectly anticipate technology developments or market trends, or have inadequate resources to develop our products to deal with changes in technology and markets, our products could become obsolete.

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Advances in the SMT electronics assembly alignment sensor market have eliminated some of the advantages of our sensors. Our SMT electronic assembly alignment sensor products compete with products made by larger machine vision companies and other optical sensor companies, and with solutions internally developed by our customers. Advances in machine vision technology in recent years have eliminated some, but not all, of the advantages that have differentiated our products from some of these competitors, and advances in other technologies could eliminate other advantages, thereby making our products less attractive to customers.

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The market for most surface mount capital equipment has become more mature and price competitive, negatively impacting our margins. The electronics capital equipment market for surface mount technologies is becoming more mature, resulting in increased price pressure on suppliers of equipment. Consequently, our SMT electronic assembly inspection systems and alignment sensor products have become subject to increased levels of price competition and competition from other suppliers and technologies, including lower cost Asian based suppliers.

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Because of the high cost of changing equipment, customers in our markets are sometimes resistant to purchasing our products even if they are superior. We believe that, because of the high cost of installation and integration of new inspection equipment into production lines, once an SMT customer has selected a vendor’s capital equipment, the customer generally relies upon that capital equipment and, to the extent possible, subsequent generations of the same vendor’s equipment. Accordingly, unless our systems offer performance or cost advantages that outweigh the expense of installing and integrating new systems, it may be difficult for us to achieve significant sales to a customer that currently uses a competitor’s equipment.

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Our ability to compete in the markets for SMT inspection systems and 3D scanners is dependent upon the sales skills of our channel of independent sales representatives, value added resellers and distributors. Our ability to successfully compete in the market for SMT inspection systems and 3D scanners is dependent upon the ability of our channel partners to sell our products. To the extent our competitors have relationships with stronger channel partners, it may be difficult for us to achieve significant sales, even if our products are technologically superior.

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The future success of CyberGage®360 is dependent on our ability to recruit new capable channel partners. The current size and capability of the sale channels for our 3D scanner products is limited. In order to generate significant CyberGage360 sales in the future, we need to greatly expand the capability of our sales channels by recruiting new, high quality independent sales representatives, value added resellers and distributors for CyberGage360. If we are unable to successfully improve the capability of our sales channels for CyberGage360, our future sales of this product will be negatively impacted.

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Competitors in Asia may be able to compete favorably with us based on lower production and employee costs, and in some cases, governmental support. We compete with large multinational companies when selling our inspection system products, many of which are able to take advantage of greater financial resources and larger sales distribution networks. We also compete with new Asian based suppliers, many of which may have lower overall production and employee costs and are willing to offer their products at lower selling prices to customers. Further, we believe some competitors receive government sponsored research and manufacturing assistance that can cause their relative cost of development of new products to be lower. These competitors may also be under less market pressure to forgo the short-term negative financial impact of concentrated investment in research and development.

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We are exposed to credit risk through sales to our OEM customers and distributors of our SMT inspection systems and 3D scanner products. We sell our products through key OEM customers, and usually have significant credit exposure with respect to these customers. In addition, we sell our SMT inspection system and 3D scanner products through a network of international distributors. These distributors tend to be small and have limited financial resources and access to capital. Although these distributors do not hold our products in inventory for re-sale, we are exposed to credit risk and would incur losses if they are unable to pay for the products they have purchased from us.

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We are dependent upon outside suppliers for components of our products, and delays in or unavailability of those components would adversely affect our results. We use outside contractors to manufacture the components used in many of our products and some of the components we order require significant lead times that could affect our ability to sell our products if the components are not available. In addition, if these components do not meet stringent quality requirements or become obsolete, there could be delays in the availability of our products, and we could be required to make significant investments in designing replacement components.

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Breaches of our network security could expose us to losses. We manage and store on our network systems various proprietary information and sensitive or confidential data relating to our operations. There has been an increasing incidence of unauthorized access to the computer networks of various technology companies, and we are not immune to attempted unauthorized access. Computer programmers and hackers may be able to gain unauthorized access to our network system and steal proprietary information, compromise confidential information, create system disruptions, or cause shutdowns. These parties may also be able to develop and deploy viruses, worms, and other malicious software programs that disrupt our operations and create security vulnerabilities. Attacks on our network systems could result in significant losses, compromise our competitive advantages and damage our reputation with customers.

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Our efforts to protect our intellectual property may be less effective in certain foreign countries, where intellectual property rights are not as well protected as in the United States. The laws of some foreign countries do not protect our proprietary rights to as great an extent as do the laws of the U.S., and many U.S. companies have encountered substantial problems in protecting their proprietary rights against infringement abroad. Consequently, there is a risk that we may be unable to adequately protect our proprietary rights in certain foreign countries. If this occurs, it would be easier for our competitors to develop and sell competing products in these countries.

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We may fail to adequately protect our intellectual property and, therefore, lose our competitive advantage. Our future success and competitive position depend in part upon our ability to obtain and maintain proprietary technology for our principal product families, and we rely, in part, on patent and trade secret law and confidentiality agreements to protect that technology. If we fail to adequately protect our intellectual property, our competitors may be able to duplicate and enhance the products we have developed. We own or have licensed a number of patents, and have filed applications for additional patents. Any of our pending patent applications may be rejected, and we may be unable to develop additional proprietary technology that is patentable in the future. In addition, the patents that we do own or that have been issued or licensed to us may not provide us with competitive advantages and may be challenged by third parties. Further, third parties may also design around these patents. In addition to patent protection, we rely upon trade secret protection for our confidential and proprietary information and technology. We routinely enter into confidentiality agreements with our employees and other third parties. Even though these agreements are in place, there can be no assurance that trade secrets and proprietary information will not be disclosed, that others will not independently develop technology substantially equivalent to our proprietary technology or otherwise gain access to our trade secrets, or that we can fully protect our trade secrets and proprietary information. Violations by others of our confidentiality agreements and the loss of employees who have specialized knowledge and expertise could harm our competitive position and cause our sales and operating results to decline as a result of increased competition. Costly and time-consuming litigation might be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection might adversely affect our ability to continue our research or bring products to market.

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Protection of our intellectual property rights, or the efforts of third parties to enforce their own intellectual property rights against us, may result in costly and time-consuming litigation, substantial damages, lost product sales and/or the loss of important intellectual property rights. We may be required to initiate litigation in order to enforce any patents issued to or licensed by us, or to determine the scope or validity of a third party’s patent or other proprietary rights. Any litigation, regardless of outcome, could be expensive and time consuming, and could subject us to significant liabilities or require us to re-engineer our products or obtain expensive licenses from third parties. There can be no assurance that any patents issued to or licensed by us will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide us with a competitive advantage. In addition, our commercial success depends in part on our ability to avoid infringing or misappropriating patents or other proprietary rights owned by third parties. From time to time, we may receive communications from third parties asserting that our products infringe, or may infringe, the proprietary rights of these third parties. These claims of infringement may lead to protracted and costly litigation, which could require us to pay substantial damages or have the sale of our products stopped by an injunction. Infringement claims could also cause product delays or require us to redesign our products and these delays could result in the loss of substantial revenues. We may also be required to obtain a license from the third party or cease activities utilizing the third party’s proprietary rights. We may not be able to enter into such a license or such a license may not be available on commercially reasonable terms. Accordingly, the loss of important intellectual property rights could hinder our ability to sell our products, or make the sale of these products more expensive.

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We have significant deferred tax assets recorded on our balance sheet based on the income tax laws and income tax rates currently in effect. Our ability to utilize these deferred tax assets is dependent on our ability to generate sufficient profits in future periods. The deferred tax assets recorded on our balance sheet are based on the income tax laws and income tax rates currently in effect. A change in income tax laws or a reduction in income tax rates in the future could require us to write-down the value of our deferred tax assets. The amount of any write-down could be large and may result in a significant charge against future earnings. Our ability to utilize our deferred tax assets and realize their value is dependent upon our ability to generate sufficient levels of profitability and taxable income in future periods. If we do not generate sufficient profits and taxable income in future periods, we most likely would be required to record a valuation allowance against our deferred tax assets, resulting in a significant charge against earnings.

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•	Our stock price is highly volatile. The trading price of our common stock fluctuates significantly in response to, among other risks, the risks described elsewhere in this Annual Report on Form 10-K, as well as:

•	conditions or trends in the industry in which we operate;

•	quarterly variations in our operating results;

•	fluctuations in the stock market in general and market prices for the stock of companies that provide sensing technology solutions in particular;

•	changes in financial estimates by us or securities analysts and recommendations by securities analysts;

•	changes in capital structure, including issuance of additional debt or equity to the public; and

•	transactions in our common stock by major investors and certain analyst reports, news and speculation.

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The absence of significant market liquidity in our common stock could impact the ability of our shareholders to purchase and sell larger blocks, the attractiveness of our stock to institutional shareholders, and the market value of our common stock. There were 6,901,887 shares of our common stock outstanding as of December 31, 2016. Although our common stock is traded in the NASDAQ Global Market, in part because of the number of shares we have outstanding and available for trading, the daily trading volume in our stock is low, averaging less than 150,000 shares per day. Shareholders wishing to purchase or sell larger blocks of stock may not be able to do so quickly, and disposal by any shareholder of a significant block of stock could adversely affect the sale price in the marketplace. Further, institutional investors often have policies against investment in stock that is illiquid, and many institutional investors may elect not to purchase or hold our stock because of the inability to dispose of it. Lack of institutional interest in our common stock can negatively impact its market price and liquidity.

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We are dependent on our President and Chief Executive Officer, Dr. Subodh Kulkarni, for new product innovation and much of the sales, marketing and business development activities related to our markets, particularly our MRS sensors. Dr. Kulkarni performs a critical role at CyberOptics with respect to product strategy and new product development and innovation. Also, he has been instrumental in development and expansion of our relationships with key OEM customers, including KLA-Tencor and Nordson-YESTECH. In addition, Dr. Kulkarni has significant responsibility for identifying potential new applications and developing new customers for our MRS sensor technology. If Dr. Kulkarni's employment with CyberOptics were to end for any reason, our ability to develop innovative products and achieve sustained long term revenue growth would be negatively impacted in a significant way.

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•	Significant under-performance relative to expected historical or projected future operating results.

•	Significant changes in the manner of our use of the acquired assets or the strategy for our overall business.

•	Significant negative industry or economic trends.

•	Significant decline in our stock price for a sustained period, and the size of our market capitalization relative to our net book value.

•	For intangible and long-lived assets, if the carrying value exceeds the un-discounted cash flows from such asset.

•	For goodwill, if the carrying value of our net assets (net book value) exceeds fair value.

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(1)	The summation of quarterly per share amounts may not equal the calculation for the full year, as each quarterly

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