Results of Operations

             The following table presents our consolidated statement of operations data for the periods indicated as a percentage of net revenue:

             Revenues.  Our net revenues were $11.5 million in the second quarter of 2001, an increase of 14.3% from net revenues of $10.1 million in the second quarter of 2000, and $24.7 million in the first six months of 2001, an increase of 25.7% from net revenues of $19.6 million in the first six months of 2000. The increase in net revenues in the second quarter of 2001, as compared to the second quarter of 2000, resulted from increased sales of our products in the industrial and medical markets, offset partially by a decline in the semiconductor capital equipment market. During the first half of 2001, we began to see weakening demand from certain customers in the communications and Internet infrastructure markets. Additionally, recent substantial slowing of worldwide semiconductor sales has resulted in a decline in demand for semiconductor capital equipment, which is expected to decrease our sales in this sector. The weakness in both of these industry segments will result in lower revenues and profits in the third quarter of 2001.We have limited visibility as to the duration of this slowing.

             During 2000, we entered into a joint venture agreement in China, which included a license and technology transfer agreement for certain of our technologies, in exchange for cash payments totaling $1.5 million over two to three years. The $1.5 million is being recognized as revenue as specific milestones under the contract for the implementation of the technology transferred to the joint venture are met. An immaterial amount of technology license revenue was included in revenues for the second quarters of 2001 and 2000.

             Gross Profit.  Our gross profit margin was 36.9% in the second quarter of 2001 compared to 37.2% in the second quarter of 2000. The decrease in gross profit margin in the second quarter of 2001, as compared to the second quarter of 2000, resulted from lower gross margin product mix and lower fixed cost absorption in our internal manufacturing facilities due to declining production volumes.  Our gross profit is expected to decline in the third quarter of 2001 due to continued low fixed cost absorption in our internal manufacturing facilities as we implement intermittent production shutdowns in order to control inventory levels and continue to experience a less favorable product mix.

             Research and Development Expense.  Our research and development expenses were $465,000 in the second quarter of 2001, an increase of 94.6% from research and development expenses of $239,000 in the second quarter of 2000. The increase in research and development expenses in the second quarter of 2001, as compared to the second quarter of 2000, primarily resulted from increased use of materials associated with our research and development efforts. We expect that our research and development efforts will continue to increase in 2001. As a percent of net revenues, research and development expense increased to 4.0% in second quarter of 2001 from 2.4% in the second quarter of 2000.

             Selling, General and Administrative Expense.  Our selling, general and administrative expenses were $2.7 million in the second quarter of 2001, an increase of 15.5% from selling, general and administrative expenses of $2.3 million in the first quarter of 2000. The increase in selling, general and administrative expenses in the second quarter of 2001, as compared to the second quarter of 2000, principally resulted from $220,000 of increased payroll from additional personnel; $86,000 of increased commissions on higher revenues; and $100,000 of expenses related to the growth of our business and being a public company, including board of director fees and increased fees from accounting, legal and other outside services. These increases were offset by the decrease in goodwill amortization to $0 in the second quarter of 2001, from $99,000 in the second quarter of 2000. (See "Effects of Push Down Accounting" below.)

             As a percent of net revenues, selling, general and administrative expense increased to 23.2% in the second quarter of 2001 from 23.0% in the second quarter of 2000.

             Stock Compensation Expense.  Stock compensation expense includes costs relating to stock–based employee compensation arrangements, and is based on the difference between the fair market value of our common stock on the date of grant of options and the exercise price of options to purchase that stock. Stock compensation expense is recognized over the vesting periods of the related options, typically five years. Stock compensation expense of $80,000 was recorded in the second quarter of 2001. Of this amount, $13,500 was recorded in cost of goods sold, $5,000 was recorded in research and development expense and $61,500 was recorded in selling, general and administrative expense. Stock compensation expense of $72,000 was recorded in the second quarter of 2000. Of this amount, $25,000 was recorded in cost of goods sold, $8,000 was recorded in research and development expense and $39,000 was recorded in selling, general and administrative expense. We expect to record stock compensation expense of $41,000 in the third quarter of 2001.

             Other income (expense), net. Other income (expense), net, which includes interest expense, interest income and other expense, was $506,000 in the second quarter of 2001 and $(528,000) in the second quarter of 2000.  Included in other income (expense) in the second quarter of 2001 was $474,000 of interest income primarily earned on the investment of proceeds from our IPO in August 2000, compared to $0 interest income in the second quarter of 2000. Included in other income (expenses) in the second quarter of 2000 was $520,000 of interest expense principally composed of imputed interest related to the issuance of warrants to Advanced Energy Industries, Inc, interest expense related to the $3.3 million note payable to Hamilton Sundstrand for the purchase of APT by our six senior officers (see "Effects of Push Down Accounting” below) and other outstanding debt related to our operations, compared to an immaterial amount of interest expense in the second quarter of 2001.

             Income Tax Expense.  Our effective tax rate was approximately 29.7% in the second quarter of 2001. We expect our annual effective tax rate will approximate 33% for 2001.  The effective tax rate in the second quarter of 2001 was lower than the federal statutory rate primarily due to the benefit of a reduction in the valuation allowance due to the realization of foreign net operating loss carry forwards.  The effective tax rate in the second quarter of 2000 was approximately 62.6%. The effective tax rate in the second quarter of 2000 was higher than the federal statutory rate primarily due to permanent differences and was partially offset by the benefit of a reduction in the valuation allowance due to the realization of foreign net operating loss carry forwards.  The permanent differences in the second quarter of 2000 relate to interest expense on a $3.3 million note payable to Hamilton Sundstrand that was not deductible for tax purposes by us and interest income that was recognized for tax purposes on $3.1 million notes payable from our six senior officers, but not recorded on our consolidated financial statements.  Additionally, goodwill amortization related to the purchase transactions increased the effective tax rate because the amortization was not deductible for tax purposes. See "Effects of Push Down Accounting” below.