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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 


FORM 10-Q

 

 

 

 

(Check One)

 

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended September 30, 2020

 

 

  

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)


Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, no par value CYBE  NASDAQ Stock Market LLC

 

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 þ No o

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes þ No o

 

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

 

 Large Accelerated Filer

 

Accelerated Filer

 Non-Accelerated Filer

  Smaller Reporting Company

 

 

  Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

 

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

 

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, 2020, there were 7,254,684 shares of the registrant’s Common Stock, no par value, issued and outstanding.

1


PART I. FINANCIAL INFORMATION


ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

CYBEROPTICS CORPORATION 

(Unaudited)

   

 

 

 

 

 

 

 

 

(In thousands, except share information)

 

September 30,
2020

 

December 31,
2019

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,665

 

 

$

5,836

 

Marketable securities

 

8,549

 

 

8,295

 

Accounts receivable, less allowances of $365 at September 30, 2020 and $322 at December 31, 2019

 

18,167

 

 

16,059

 

Inventories

 

21,285

 

 

15,580

 

Prepaid expenses
685

559

Other current assets

 

1,683

 

 

1,020

 

Total current assets

 

56,034

 

 

47,349

 




Marketable securities, long-term 

 

13,703

 

 

12,168

 

Equipment and leasehold improvements, net

 

3,237

 

 

3,341

 

Intangible assets, net

 

286

 

 

310

 

Goodwill

 

1,366

 

 

1,366

 

Right-of-use assets (operating leases)
2,710

2,111


Trade notes receivable, long-term
532

962

Deferred tax assets

 

4,658

 

 

4,992

 

Total assets

 

$

82,526



$

72,599

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Accounts payable

 

$

10,051

 

 

$

7,023

 

Advance customer payments

 

758

 

 

499

 

Accrued expenses

 

3,685

 

 

2,572

 

Current operating lease liabilities
769

688

Total current liabilities

 

15,263

 

 

10,782

 

 

Other liabilities

 

150

 

 

202

 

Long-term operating lease liabilities
3,424

3,141

Reserve for income taxes

 

150

 

 

150

 

Total liabilities

 

18,987

 

 

14,275

 

 

 

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, 7,254,684 shares issued and outstanding at September 30, 2020 and 7,154,591 shares issued and outstanding at December 31, 2019

 

37,648

 

 

36,659

 

Accumulated other comprehensive loss

 

(1,456

)

 

(1,406

)

Retained earnings

 

27,347

 

 

23,071

 

Total stockholders’ equity

 

63,539

 

 

58,324

 

Total liabilities and stockholders’ equity

 

$

82,526

 

 

$

72,599

 

 

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

 

2


 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

CYBEROPTICS CORPORATION

(Unaudited)

 

















 


Three Months Ended September 30,

Nine Months Ended September 30,

(In thousands, except per share amounts)


2020
2019
2020
2019

Revenues


$ 20,820

$ 12,391

$ 53,245

$ 42,411

Cost of revenues



12,125


6,885


29,953



23,290

 

















Gross margin



8,695


5,506


23,292


19,121

 

















Research and development expenses



2,403


2,408


6,980


6,950

Selling, general and administrative expenses



4,082



3,855


11,900



11,779

 

















Income (loss) from operations



2,210

(757 )

4,412


392

 

















Interest income (expense) and other



(2 )

170


326



306

 

















Income (loss) before income taxes



2,208

(587 )

4,738


698

 

















Income tax expense (benefit)



409

(234 )

462



92

 

















Net income (loss)


$ 1,799
$ (353 )
$ 4,276


$ 606

 

















Net income (loss) per share – Basic


$ 0.25
$ (0.05 )
$ 0.59

$ 0.09

Net income (loss) per share – Diluted


$ 0.24

$ (0.05 )
$ 0.57

$ 0.08

 

















Weighted average shares outstanding – Basic



7,240


7,117


7,198


7,108

Weighted average shares outstanding – Diluted



7,519



7,117


7,445



7,245

 

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

 

3


 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 

CYBEROPTICS CORPORATION  

(Unaudited)


















 


Three Months Ended September 30,
Nine Months Ended September 30,

(In thousands)


2020
2019
2020
2019

Net income (loss)


$ 1,799
$ (353 )
$ 4,276

$ 606

 

















Other comprehensive income (loss) before income taxes:

















Foreign currency translation adjustments

236

(269 )

(210 )

(199 )

 

















Unrealized gains (losses) on available-for-sale securities



(58 )

1


203


129

 

















Total other comprehensive income (loss) before income taxes 



178

(268 )

(7 )

(70 )

















Income tax expense (benefit)



(12)



43

26

















Total other comprehensive income (loss) after income taxes



190

(268 )

(50 )

(96 )

















Total comprehensive income (loss)


$ 1,989
$ (621 )
$ 4,226


$ 510

 

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

 

4


 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

CYBEROPTICS CORPORATION

(Unaudited) 

 

 

 

 



 

 

 

 

 

Nine Months Ended September 30,

(In thousands)

 

2020



2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:


 



 

 

Net income

 

$

4,276



$

606


Adjustments to reconcile net income to net cash provided by operating activities:

 

 



 

 

Depreciation and amortization

 

1,899



2,102

 

Non-cash operating lease expense
384


Provision (recovery) for doubtful accounts

 

43


(31

)

Deferred taxes

 

289


107

Foreign currency transaction gains

 

(181

)

(112

)

Share-based compensation

 

863



737

 

Unrealized loss on available-for-sale equity security

 

23



10

 

Changes in operating assets and liabilities:

 

 



 

 

Accounts and trade notes receivable

 

(1,721

)

2,568


Inventories

 

(6,380

)

(1,123

)

Prepaid expenses and other assets

 

(785

)

235


Accounts payable

 

3,060


(3,538

)

Advance customer payments and other

 

208


(50

)

Accrued expenses

 

1,120


(1,077

)
Operating leases
(616 )
482

Net cash provided by operating activities 

 

2,482



916


 


 



 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:


 



 

 

Proceeds from maturities of available-for-sale marketable securities 


9,016



6,144

 

Purchases of available-for-sale marketable securities


(10,637

)

(7,080

)

Additions to equipment and leasehold improvements


(1,049

)

(1,065

)

Additions to patents


(115

)

(88

)

Net cash used in investing activities


(2,785

)

(2,089

)

 

 

 



 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:


 



 

 

Proceeds from exercise of stock options


322



173

 

Tax payments for shares withheld related to stock option exercises
(420 )

Common stock repurchases


(353 )
Proceeds from issuance of common stock under employee stock purchase plan
224

203

Net cash provided by financing activities


126


23

 

 

 

 



 

 

 

Effects of exchange rate changes on cash and cash equivalents


6


6

 


 



 

 

 

Net decrease in cash and cash equivalents


(171

)

(1,144

)

 


 



 

 

 

Cash and cash equivalents – beginning of period


5,836



9,248

 

Cash and cash equivalents – end of period


$

5,665



$

8,104

 

 

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

 

5


 

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CYBEROPTICS CORPORATION


1. INTERIM REPORTING:


The interim condensed consolidated financial statements of CyberOptics Corporation and its wholly-owned subsidiaries ("we", "us" or "our") presented herein as of September 30, 2020, and for the three and nine month periods ended September 30, 2020 and 2019, are unaudited but, in the opinion of management, include all adjustments, consisting 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, 2020 do not necessarily indicate the results to be expected for the full year. The December 31, 2019 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 ("U.S. GAAP"). The 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, 2019.


2. COVID-19 PANDEMIC:


Effect of Covid-19 Outbreak on Business Operations


In December 2019, a novel strain of coronavirus ("Covid-19") was first identified, and in March 2020, the World Health Organization categorized Covid-19 as a pandemic. The Covid-19 pandemic is affecting our customers, suppliers, service providers and employees, and the ultimate impacts of Covid-19 on our business, results of operations, liquidity and prospects are not fully known at this time. The Covid-19 outbreak has not had a significant impact on our business to date. However, the following factors have affected and may continue to affect our business:

 

· Our key factories are located in Minnesota and Singapore. Both of these locations have been subject to government mandated shelter-in-place orders. Because our operations have been deemed essential, we were able to keep our factories up and running while the shelter-in-place mandates were in effect. If the pandemic worsens, it is possible that our operations may not be deemed essential under future government mandated shelter-in-place orders, and we may be required to shut-down factory operations. We have periodically implemented split-shifts for our factory operations to minimize the number of employees in our facilities at any given time, but these measures have not affected our production capacity. Most of the time, our non-factory employees are working remotely. To date, the shelter-in-place mandates and remote work arrangements have had a minimal impact on operations, but material negative effects on our business could result if the pandemic worsens and continues for an extended period of time.

 
· Sales of some products, mainly our SQ3000 Multi-Function inspection and measurement systems and MX memory module inspection products, require customer acceptance due to performance or other criteria that is considered more than a formality. Most of our customer’s factories have remained open during the Covid-19 pandemic because they are deemed to be essential under government shelter-in-place mandates. However, global travel restrictions and quarantine measures have hindered our ability to obtain customer acceptances of certain of our products at various times in the nine months ended September 30, 2020. Continuing or new global travel restrictions and quarantine measures could hinder our ability to obtain customer acceptances in a timely manner in the future, and therefore impact the timing of revenue recognition.

 
·
We have experienced some supply disruptions due to the Covid-19 pandemic, mainly from suppliers not deemed essential by shelter-in-place mandates in certain countries. Key supply chain disruptions have been resolved to date. However, supply chain disruptions could increase significantly if the pandemic worsens and continues for an extended period of time. To date, our on-hand inventories have been sufficient to enable us to mitigate supply disruptions. 


Although we cannot estimate the length or gravity of the impact of the Covid-19 outbreak at this time, if the pandemic continues as expected for the foreseeable future, it may have an adverse effect on our results of future operations, financial position and liquidity in the fourth quarter of 2020 and beyond. There have been recent spikes in Covid-19 cases, and some health experts have predicted that the Covid-19 pandemic will worsen during the winter months.


CARES Act  


On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was signed into law in the United States. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods and alternative tax credit refunds. The CARES Act also appropriated funds for the Small Business Administration Paycheck Protection Program loans that are forgivable in certain circumstances to promote continued employment. We have analyzed the provisions of the CARES Act and presently do not believe it will have a material benefit to our financial condition, results of operations or liquidity. However, we will continue to monitor the impact the CARES Act could have on our business.


6



Singapore Jobs Support Program


The Singapore Government implemented a jobs support program in 2020 that is intended to support businesses and encourage retention of employees during the period of economic uncertainty caused by the Covid-19 pandemic. Under the jobs support program, the Singapore Government has co-funded a portion of the gross monthly wages paid to local employees, which reduced our operating expenses in the three and nine months ended September 30, 2020 by $76,000 and $371,000, respectively. We anticipate that the Singapore jobs support program will reduce operating expenses in the fourth quarter of 2020 by approximately $35,000.


3. RECENT ACCOUNTING DEVELOPMENTS: 


In January 2017, the Financial Accounting Standards Board ("FASB") issued guidance on simplifying the test for goodwill impairment, ASU 2017-04Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). Under ASU 2017-04, goodwill impairment is measured as the amount by which a reporting unit’s carrying value exceeds its fair value, but not in an amount in excess of the carrying value of goodwill. The new standard eliminated the requirement to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. ASU 2017-04 was effective for impairment tests beginning January 1, 2020. Our adoption of ASU 2017-04 did not have any impact on our consolidated financial statements. 


No other new accounting pronouncements are expected to have a significant impact on our consolidated financial statements. 


4. REVENUE RECOGNITION:


Our revenue performance obligations are primarily satisfied at a point in time and limited revenue streams are satisfied over time as work progresses.


The following is a summary of our revenue performance obligations:








Three Months Ended September 30, 2020
Three Months Ended September 30, 2019

(In thousands except percentages)


Revenues
Percent of Revenues

Revenues

Percent of Revenues

Revenue recognized over time


$ 546
3

%

$

403


3

%

Revenue recognized at a point in time



20,274
97 %

11,988

97

%


$ 20,820
100 %

$

12,391

100

%

















Nine Months Ended September 30, 2020
Nine Months Ended September 30, 2019
(In thousands except percentages)
Revenues
Percent of Revenues
Revenues
Percent of Revenues
Revenue recognized over time 
$ 1,101
2 %
$ 1,041
2 %
Revenue recognized at a point in time

52,144
98 %

41,370
98 %


$ 53,245
100 %
$
42,411
100 %


See Note 11 for additional information regarding disaggregation of revenue.


Contract Balances


Contract assets consist of unbilled amounts from sales where we recognize the revenue over time and the revenue recognized exceeds the amount billed to the customer at a point in time. Accounts and trade notes receivable are recorded when the right to payment becomes unconditional. Contract liabilities consist of payments received in advance of performance under the contract. Contract liabilities are recognized as revenue when we perform under the contract. 

The following summarizes our contract assets and contract liabilities:    






(In thousands)


September 30,

2020


December 31,

2019

Contract assets, included in other current assets


$

29

 


$

 2

 

Contract liabilities - advance customer payments


$

484

 


$

389

 

Contract liabilities - deferred warranty revenue 
$ 388

$ 275


7



Changes in contract assets in the nine months ended September 30, 2020 and the nine months ended September 30, 2019 resulted from unbilled amounts under sensor product arrangements and longer duration 3D scanning service projects in which revenue is recognized over time. Changes in contract liabilities primarily resulted from reclassification of beginning contract liabilities to revenue as performance obligations were satisfied or from cash received in advance and not recognized as revenue. See Note 9 for changes in contractual obligations related to deferred warranty revenue. Unsatisfied performance obligations are generally expected to be recognized as revenue over the next one to three years. There were no impairment losses for contract assets in the nine months ended September 30, 2020 or the nine months ended September 30, 2019. 

The following summarizes the amounts reclassified from beginning contract liabilities to revenue: 













Three Months Ended September 30,
Nine Months Ended September 30,
(In thousands)
2020
2019
2020
2019

Amounts reclassified from beginning contract liabilities to revenue


$ 287

$ 342

$ 106

$ 401
Amounts reclassified from deferred warranty revenue

86


111


269


334
Total  $ 373 $ 453
$ 375


$ 735

5. MARKETABLE SECURITIES:


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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

(In thousands)

 

Cost

 

Unrealized
Gains

 

Unrealized
Losses

 

Fair Value

Short-Term

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

4,927

 

 

$

46

 

 

$


 

$

4,973

 

Corporate debt securities and certificates of deposit

 

3,408

 

 

33

 

 

 

3,441

 

Asset backed securities

 

133

 

 

2

 

 

 

135

 

Marketable securities – short-term

 

$

8,468

 

 

$

81

 

 

$

 

$

8,549

 

Long-Term

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

7,268

 

 

$

87

 

 

$

(1

)

 

$

7,354

 

Corporate debt securities and certificates of deposit

 

3,732

 

 

68

 

 

(2

)

 

3,798

 

Asset backed securities

 

2,471

 

 

54

 

 

 

2,525

 

Equity security

 

42

 

 

 

 

(16

)

 

26

 

Marketable securities – long-term

 

$

13,513

 

 

$

209

 

 

$

(19

)

 

$

13,703

 





 

December 31, 2019

(In thousands)

 

Cost

 

Unrealized
Gains

 

Unrealized
Losses

 

Fair Value

Short-Term

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

5,766

 

 

$

22

 

 

$

 

$

5,788

 

Corporate debt securities and certificates of deposit

 

1,085

 

 

1

 

 

 

1,086

 

Asset backed securities

 

1,417

 

 

4

 

 

 

 

1,421

 

  Marketable securities – short-term

 

$

8,268

 

 

$

27

 

 

$

 

$

8,295

 

Long-Term

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

6,524

 

 

$

30

 

 

$

(1

)

 

$

6,553

 

Corporate debt securities and certificates of deposit

 

3,004

 

 

14

 

 

 

3,018

 

Asset backed securities

 

2,535

 

 

15

 

 

(1

)

 

2,549

 

Equity security

 

42

 

 

6

 

 

 

 

48

 

Marketable securities – long-term

 

$

12,105

 

 

$

65

 

 

$

(2

)

 

$

12,168

 


8



At September 30, 2020 and December 31, 2019, investments in marketable debt securities in an unrealized loss position were as follows:  

 
 
 
 

 
In Unrealized Loss Position For
Less Than 12 Months 
 
 In Unrealized Loss Position For
Greater Than 12 Months
(In thousands) 
 
Fair Value
 
Gross Unrealized
Losses
 
Fair Value
 
Gross Unrealized
Losses
September 30, 2020












   U.S. government and agency obligations

$
754


$
(1
)

$


$

   Corporate debt securities and certificates of deposit

485


(2
)




      Marketable securities

$
1,239


$
(3
)

$


$

December 31, 2019
 
 

 
 

 
 

 
 

U.S. government and agency obligations
 
$
149

 
$
(1
)
 
$
 
$
Asset backed securities
 
684

 
(1
)
 
 

Marketable securities
 
$
833

 
$
(2
)
 
$
 
$


Our investments in marketable debt securities all have maturities of less than five years. Net pre-tax unrealized gains for marketable debt securities of $287,000 at September 30, 2020 and $84,000 at December 31, 2019 have been recorded as a component of accumulated other comprehensive loss in stockholders’ equity. We have determined that the net pre-tax unrealized losses for marketable debt securities at September 30, 2020 and December 31, 2019 were caused by fluctuations in interest rates and are temporary in nature. We review our marketable debt securities to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, credit quality and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. No marketable securities were sold in the nine months ended September 30, 2020 or the nine months ended September 30, 2019. See Note 6 for additional information regarding the fair value of our investments in marketable securities.


Investments in marketable securities classified as cash equivalents totaled $1.9 million at September 30, 2020 and $2.6 million at December 31, 2019 and consist of corporate debt securities and certificates of deposit. There were no unrealized gains or losses associated with any of these securities at September 30, 2020 or December 31, 2019.


Cash and marketable securities held by foreign subsidiaries totaled $371,000 at September 30, 2020 and $327,000 at December 31, 2019.


6. 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 is considered 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 marketable securities as of September 30, 2020 and December 31, 2019 according to the three-level fair value hierarchy:




 

 

Fair Value Measurements at
September 30, 2020 Using

(In thousands)

 

Balance

September 30, 
2020

 

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

12,327

 

 

$

 

 

$

12,327

 

 

$

 

Corporate debt securities and certificates of deposit 

 

7,239

 

 

 

 

7,239

 

 

 

Asset backed securities

 

2,660

 

 

 

 

2,660

 

 

 

Equity security

 

26

 

 

26

 

 

 

 

 

Total marketable securities 

 

$

22,252

 

 

$

26

 

 

$

22,226

 

 

$

 


9



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at
December 31, 2019 Using

(In thousands)

 

Balance

December 31,

2019

 

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

12,341

 

 

$

 

 

$

12,341

 

 

$

 

Corporate debt securities and certificates of deposit

 

4,104

 

 

 

 

4,104

 

 

 

Asset backed securities

 

3,970

 

 

 

 

3,970

 

 

 

Equity security

 

48

 

 

48

 

 

 

 

 

Total marketable securities

 

$

20,463

 

 

$

48

 

 

$

20,415

 

 

$

 


During the nine months ended September 30, 2020 and the year ended December 31, 2019, we owned no Level 3 securities, and there were no transfers within the three level hierarchy. A significant transfer is recognized when the inputs used to value a security have been changed which merit a transfer between the levels of the valuation hierarchy.    


The fair value for our U.S. government and agency obligations, corporate debt securities and certificates of deposit and asset backed securities are determined based on valuations provided by external investment managers who obtain them from a variety of industry standard data providers. The fair value for our equity security is based on a quoted market price obtained from an active market. The carrying amounts of financial instruments included in cash equivalents approximate their related fair values due to the short-term maturities of those instruments. See Note 5 for additional information regarding our investments in marketable securities.


Non-financial assets such as equipment and leasehold improvements, goodwill and intangible assets and right-of-use assets for operating leases are subject to non-recurring fair value measurements if they are deemed impaired. We had no re-measurements of non-financial assets to fair value in the nine months ended September 30, 2020 or the nine months ended September 30, 2019. See Note 10 for our analysis regarding potential impairment of goodwill, other long-lived assets and intangibles. 

The fair value for trade notes receivable is based on discounted future cash flows using current interest rates that would be offered for a similar transaction to a similarly situated customer. The difference between the carrying amount and estimated fair value for trade notes receivable is immaterial. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy. At September 30, 2020, our trade notes receivable were deemed to be fully collectible, and no trade notes receivable were past due more than 90 days or in a non-accrual status with respect to interest income.

7. SHARE-BASED COMPENSATION:


We have three share-based compensation plans that are administered by the Compensation Committee of the Board of Directors. We have (a) an Employee Stock Incentive Plan for officers, other employees, consultants and independent contractors under which we have granted options and restricted stock units to officers and other employees, (b) an Employee Stock Purchase Plan under which shares of our common stock may be acquired by employees at discounted prices, and (c) a Non-Employee Director Stock Plan that provides for automatic grants of restricted shares of our common stock to non-employee directors. New shares of our common stock are issued upon stock option exercises, vesting of restricted stock units, issuances of shares to board members and issuances of shares under the Employee Stock Purchase Plan. 

Employee Stock Incentive Plan

 

As of September 30, 2020, there were 185,351 shares of common stock reserved in the aggregate for issuance pursuant to future awards under our Employee Stock Incentive Plan and 464,904 shares of common stock reserved in the aggregate for issuance pursuant to outstanding awards under such plan. Although our Compensation Committee has authority to issue options, restricted stock, restricted stock units, share grants and other share-based benefits under our Employee Stock Incentive Plan, to date only restricted stock units and stock options have been granted under the plan. Options have been granted at an option price per share equal to the market value of our common stock on the date of grant, vest over a four year period and expire seven years after the date of grant. Restricted stock units vest over a four year period and entitle the holders to one share of our common stock for each restricted stock unit. Reserved shares underlying outstanding awards, including options and restricted stock units, that are forfeited are available again under the Employee Stock Incentive Plan for future grant.


10



Non-Employee Director Stock Plan

 

As of September 30, 2020, there were 44,000 shares of common stock reserved in the aggregate for issuance pursuant to future restricted share grants under our Non-Employee Director Stock Plan and 12,000 shares of common stock reserved in the aggregate for issuance pursuant to outstanding stock option awards under our Non-Employee Director Stock Plan (which previously authorized the granting of stock options to non-employee directors). Under the terms of the plan, each non-employee director receives annual restricted share grants of 2,000 shares of our common stock on the date of each annual meeting at which such director is elected to serve on the board. The annual restricted share grants of common stock vest in four equal quarterly installments during the year after the grant date provided the non-employee director is still serving as a director on the applicable vesting date. 


On the date of our 2020 annual meeting, we issued a total of 8,000 shares of our common stock to our non-employee directors, which were restricted as specified in the Non-Employee Director Stock Plan. The shares granted at the 2020 annual meeting had an aggregate fair market value on the date of grant equal to $226,720 (grant date fair value of $28.34 per share). As of September 30, 2020, 2,000 of these shares were vested. The aggregate fair value of the 6,000 unvested shares based on the closing price of our common stock on September 30, 2020 was $191,000


Stock Option Activity


The following is a summary of stock option activity in the nine months ended September 30, 2020:

 

 

 

 

 

 

 

 

Options Outstanding

 

Weighted Average Exercise
Price Per Share

Outstanding, December 31, 2019

520,513

 

 

$

12.25

 

Granted

 

 

 

Exercised

(107,813

)

 

8.10

 

Expired

 

 

Forfeited

 

 

Outstanding, September 30, 2020

412,700

 

 

$

13.33

 


 

 

 

Exercisable, September 30, 2020

273,126

 

 

$

11.22

 

 

The intrinsic value of an option is the amount by which the market price of the underlying common stock exceeds the option's exercise price. For options outstanding at September 30, 2020, the weighted average remaining contractual term of all outstanding options was 3.3 years and their aggregate intrinsic value was $7.6 million. At September 30, 2020, the weighted average remaining contractual term of options that were exercisable was 2.3 years and their aggregate intrinsic value was $5.6 million. The aggregate intrinsic value of stock options exercised was $2.1 million in the nine months ended September 30, 2020 and $121,000 in the nine months ended September 30, 2019. We received proceeds from stock option exercises of $322,000 in the nine months ended September 30, 2020 and $173,000 in the nine months ended September 30, 2019. No stock options vested in the nine months ended September 30, 2020. 


Restricted Shares and Restricted Stock Units

Restricted shares are granted under our Non-Employee Director Stock Plan. There were 8,000 restricted shares granted in the nine months ended September 30, 2020. Restricted stock units are granted under our Employee Stock Incentive Plan. No restricted stock units were granted in the nine months ended September 30, 2020 or the nine months ended September 30, 2019. The aggregate fair value of outstanding restricted shares and restricted stock units based on the closing share price of our common stock as of September 30, 2020 was $2.2 million. The aggregate fair value of restricted shares and restricted stock units that vested, based on the closing price of our common stock on the vesting date, was $179,000 in the nine months ended September 30, 2020 and $105,000 in the nine months ended September 30, 2019.

 

The following is a summary of activity in restricted shares and restricted stock units in the nine months ended September 30, 2020:

Restricted shares and restricted stock units

 

Shares

 

Weighted Average  Grant Date Fair Value

Non-vested at December 31, 2019

 

68,204

 

 

$

17.39

 

Granted

 

8,000

 

 

28.34

 

Vested

 

(6,000

)

 

20.95

 

Forfeited

 


 

 

Non-vested at September 30, 2020

 

70,204

 

 

$

18.33

 

 

11



Employee Stock Purchase Plan


We have an Employee Stock Purchase Plan available to eligible U.S. employees. Under the 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 (which begins on August 1st and ends on July 31st of each year). There were 19,897 shares purchased under this plan in the nine months ended September 30, 2020. As of September 30, 2020, 136,791 shares remain available for future purchase under the Employee Stock Purchase Plan.


Share-Based Compensation Information 

All share-based compensation awarded to our employees and non-employee directors, including grants of stock options, restricted stock units and restricted shares, are required to be recognized as an expense in our consolidated statements 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 has been determined as of the date of grant using the Black-Scholes model. We have classified employee share-based compensation within our statements of operations in the same manner as our cash-based employee compensation costs. 

Pre-tax share-based compensation expense in the three months ended September 30, 2020 totaled $305,000, and included $115,000 for stock options, $31,000 for our Employee Stock Purchase Plan, $102,000 for restricted stock units and $57,000 for restricted shares. Pre-tax share-based compensation expense in the nine months ended September 30, 2020 totaled $863,000, and included $343,000 for stock options, $79,000 for our Employee Stock Purchase Plan, $304,000 for restricted stock units and $137,000 for restricted shares.

 

Pre-tax share-based compensation expense in the three months ended September 30, 2019 totaled $244,000, and included $110,000 for stock options, $21,000 for our Employee Stock Purchase Plan, $78,000 for restricted stock units and $35,000 for restricted shares. Pre-tax share-based compensation expense in the nine months ended September 30, 2019 totaled $737,000, and included $327,000 for stock options, $81,000 for our Employee Stock Purchase Plan, $231,000 for restricted stock units and $98,000 for restricted shares.


At September 30, 2020, the total unrecognized compensation cost related to non-vested share-based compensation arrangements was $1.8 million and the related weighted average period over which such cost is expected to be recognized was 2.24 years.


8CHANGES IN STOCKHOLDERS’ EQUITY:

 

A reconciliation of the changes in our stockholders' equity is as follows:


Three Months Ended September 30, 2020:

 

Common Stock

Accumulated

Other Comprehensive

Loss

 

Retained

Earnings

Total Stockholders’

Equity

(In thousands)

Shares

 

 Amount 

 

Balance, June 30, 2020

7,232

 

37,053

 

(1,646

)

 

25,548

 

60,955

 

Exercise of stock options, net of shares exchanged as payment   3


66








66

Share-based compensation

 

 

305

 

 

 

 

 

 

305

 

Issuance of common stock under Employee Stock Purchase Plan
20


224








224

Other comprehensive income, net of tax

 

 

 

 

190

 

 

 

 

190

Net income

 

 

 

 

 

 

1,799

 

 

1,799

 

Balance, September 30, 2020

7,255

 

37,648

 

(1,456

)

 

27,347

 

63,539


12



Nine Months Ended September 30, 2020:

 

Common Stock

Accumulated

Other Comprehensive

Loss

 

Retained

Earnings

Total Stockholders’

Equity

(In thousands)

Shares

 

 Amount 

 

Balance, December 31, 2019

7,155

 

36,659

 

(1,406

)

 

23,071

 

58,324

 

Exercise of stock options, net of shares exchanged as payment
88


322








322
Tax payments for shares withheld related to stock option exercises
(16 )

(420 )







(420 )
Share issuances for director compensation
8












Share-based compensation

 

 

863

 

 

 

 

 

 

863

 

Issuance of common stock under Employee Stock Purchase Plan


20


224








224


Other comprehensive loss, net of tax

 

 

 

 

(50

)

 

 

 

 

(50

)

Net income

 

 

 

 

 

 

4,276

 

 

4,276

 

Balance, September 30, 2020

7,255

 

37,648

 

(1,456

)

 

27,347

 

63,539


Three Months Ended September 30, 2019:

  Common Stock

Accumulated

Other Comprehensive

Loss

 

Retained

Earnings

Total Stockholders’

Equity

(In thousands)  Shares    Amount   
Balance, June 30, 2019    7,115   $  36,189   $  (1,518 )   $ 23,256   $ 57,927  
Exercise of stock options
15


114









114

Share-based compensation       244                244  
Issuance of common stock under Employee Stock Purchase Plan  18     203                203  
Repurchase of common stock
(26
)

(353 )








(353
)
Other comprehensive loss, net of tax             (268 )         (268 )
Net loss                   (353 )   (353 )
Balance, September 30, 2019  7,122   $ 36,397   $ (1,786 )   $ 22,903   $ 57,514  


Nine Months Ended September 30, 2019:

  Common Stock

Accumulated

Other Comprehensive

Loss

Retained

Earnings

Total Stockholders’

Equity

(In thousands)
Shares

Amount
Balance December 31, 2018   7,101   $ 35,637   $ (1,690 )   $ 22,264     $ 56,211  
Increase related to adoption of ASU 2016-02 33 33

Exercise of stock options

21 173 173
Share issuances for director compensation
8














Share-based compensation 737 737
Issuance of common stock under Employee Stock Purchase Plan