NASDAQ MN MN false true false 1 1 true false --12-31 Non-accelerated Filer 0000768411 CYBEROPTICS CORP false 2020 FY Yes 0 1 1 1 false 0000768411 2019-07-31 0000768411 2019-10-01 2019-12-31 0000768411 us-gaap:RetainedEarningsMember 2018-12-31 0000768411 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0000768411 2019-07-01 2019-09-30 0000768411 us-gaap:CommonStockMember 2018-12-31 0000768411 2019-04-01 2019-06-30 0000768411 2019-01-01 2019-03-31 0000768411 2019-01-01 2019-12-31 0000768411 2019-12-31 0000768411 us-gaap:AccountingStandardsUpdate201409Member srt:MinimumMember us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2020-12-31 0000768411 us-gaap:AccountingStandardsUpdate201409Member srt:MaximumMember us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2020-12-31 0000768411 us-gaap:LeaseholdImprovementsMember srt:MinimumMember 2020-01-01 2020-12-31 0000768411 us-gaap:LeaseholdImprovementsMember srt:MaximumMember 2020-01-01 2020-12-31 0000768411 cybe:GoldenValleyMember stpr:MN 2020-12-31 0000768411 srt:MinimumMember 2020-01-01 2020-12-31 0000768411 srt:MaximumMember 2020-01-01 2020-12-31 0000768411 us-gaap:CommonStockMember 2020-01-01 2020-12-31 0000768411 us-gaap:RetainedEarningsMember 2020-01-01 2020-12-31 0000768411 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-01-01 2020-12-31 0000768411 us-gaap:CommonStockMember 2020-12-31 0000768411 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-12-31 0000768411 us-gaap:RetainedEarningsMember 2020-12-31 0000768411 cybe:GoldenValleyMember stpr:MN 2020-01-01 2020-12-31 0000768411 cybe:SemiconductorSensorsMember 2020-01-01 2020-12-31 0000768411 country:US 2020-01-01 2020-12-31 0000768411 country:NL 2020-01-01 2020-12-31 0000768411 cybe:OtherEuropeMember 2020-01-01 2020-12-31 0000768411 country:CN 2020-01-01 2020-12-31 0000768411 country:SG 2020-01-01 2020-12-31 0000768411 country:KR 2020-01-01 2020-12-31 0000768411 country:JP 2020-01-01 2020-12-31 0000768411 cybe:OtherAsiaMember 2020-01-01 2020-12-31 0000768411 cybe:OtherGeographicLocationMember 2020-01-01 2020-12-31 0000768411 country:US 2020-12-31 0000768411 us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember cybe:CustomerOneMember 2020-01-01 2020-12-31 0000768411 srt:EuropeMember 2020-12-31 0000768411 cybe:AsiaAndOtherMember 2020-12-31 0000768411 cybe:RetirementSavingsPlanSection401KMember 2020-01-01 2020-12-31 0000768411 cybe:DefinedContributionRetirementSavingsPlansMember 2020-01-01 2020-12-31 0000768411 country:SG 2020-12-31 0000768411 us-gaap:AccumulatedTranslationAdjustmentMember 2020-01-01 2020-12-31 0000768411 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2020-01-01 2020-12-31 0000768411 us-gaap:AccumulatedTranslationAdjustmentMember 2020-12-31 0000768411 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2020-12-31 0000768411 us-gaap:FairValueInputsLevel1Member 2020-12-31 0000768411 us-gaap:FairValueInputsLevel2Member 2020-12-31 0000768411 us-gaap:FairValueInputsLevel3Member 2020-12-31 0000768411 us-gaap:EmployeeStockOptionMember 2020-01-01 2020-12-31 0000768411 us-gaap:RestrictedStockUnitsRSUMember 2020-01-01 2020-12-31 0000768411 cybe:NonEmployeeDirectorStockPlanMember 2020-12-31 0000768411 us-gaap:EmployeeStockOptionMember cybe:StockIncentivePlanMember 2020-12-31 0000768411 us-gaap:EmployeeStockMember srt:MinimumMember 2020-01-01 2020-12-31 0000768411 cybe:NonEmployeeDirectorStockPlanMember 2020-01-01 2020-12-31 0000768411 us-gaap:EmployeeStockOptionMember 2020-12-31 0000768411 cybe:RestrictedSharesAndRestrictedStockUnitsMember 2020-01-01 2020-12-31 0000768411 cybe:RestrictedSharesAndRestrictedStockUnitsMember 2020-12-31 0000768411 us-gaap:EmployeeStockMember 2020-01-01 2020-12-31 0000768411 us-gaap:EmployeeStockMember 2020-12-31 0000768411 cybe:StockGrantPlanForNonEmployeeDirectorsMember 2020-01-01 2020-12-31 0000768411 cybe:StockOptionsAndRestrictedStockUnitsRsusMember 2020-01-01 2020-12-31 0000768411 us-gaap:EquipmentMember 2020-12-31 0000768411 us-gaap:LeaseholdImprovementsMember 2020-12-31 0000768411 us-gaap:PatentsMember 2020-12-31 0000768411 us-gaap:ComputerSoftwareIntangibleAssetMember 2020-12-31 0000768411 us-gaap:CustomerRelatedIntangibleAssetsMember 2020-12-31 0000768411 us-gaap:PatentsMember 2020-01-01 2020-12-31 0000768411 us-gaap:ComputerSoftwareIntangibleAssetMember 2020-01-01 2020-12-31 0000768411 us-gaap:CustomerRelatedIntangibleAssetsMember 2020-01-01 2020-12-31 0000768411 us-gaap:USTreasuryAndGovernmentMember 2020-12-31 0000768411 cybe:CorporateDebtSecuritiesAndCertificatesOfDepositMember 2020-12-31 0000768411 us-gaap:AssetBackedSecuritiesMember 2020-12-31 0000768411 us-gaap:EquitySecuritiesMember 2020-12-31 0000768411 us-gaap:EmployeeStockMember srt:MaximumMember 2020-01-01 2020-12-31 0000768411 us-gaap:USTreasuryAndGovernmentMember us-gaap:ShortTermInvestmentsMember 2020-12-31 0000768411 cybe:CorporateDebtSecuritiesAndCertificatesOfDepositMember us-gaap:ShortTermInvestmentsMember 2020-12-31 0000768411 us-gaap:AssetBackedSecuritiesMember us-gaap:ShortTermInvestmentsMember 2020-12-31 0000768411 us-gaap:USTreasuryAndGovernmentMember us-gaap:OtherLongTermInvestmentsMember 2020-12-31 0000768411 cybe:CorporateDebtSecuritiesAndCertificatesOfDepositMember us-gaap:OtherLongTermInvestmentsMember 2020-12-31 0000768411 us-gaap:AssetBackedSecuritiesMember us-gaap:OtherLongTermInvestmentsMember 2020-12-31 0000768411 us-gaap:EquitySecuritiesMember us-gaap:OtherLongTermInvestmentsMember 2020-12-31 0000768411 us-gaap:USTreasuryAndGovernmentMember us-gaap:FairValueInputsLevel1Member 2020-12-31 0000768411 cybe:CorporateDebtSecuritiesAndCertificatesOfDepositMember us-gaap:FairValueInputsLevel1Member 2020-12-31 0000768411 us-gaap:AssetBackedSecuritiesMember us-gaap:FairValueInputsLevel1Member 2020-12-31 0000768411 us-gaap:EquitySecuritiesMember us-gaap:FairValueInputsLevel1Member 2020-12-31 0000768411 cybe:CustomerOneMember us-gaap:CustomerConcentrationRiskMember cybe:ExportRevenuesMember 2019-01-01 2019-12-31 0000768411 us-gaap:USTreasuryAndGovernmentMember us-gaap:FairValueInputsLevel2Member 2020-12-31 0000768411 cybe:CorporateDebtSecuritiesAndCertificatesOfDepositMember us-gaap:FairValueInputsLevel2Member 2020-12-31 0000768411 us-gaap:AssetBackedSecuritiesMember us-gaap:FairValueInputsLevel2Member 2020-12-31 0000768411 us-gaap:EquitySecuritiesMember us-gaap:FairValueInputsLevel2Member 2020-12-31 0000768411 us-gaap:USTreasuryAndGovernmentMember us-gaap:FairValueInputsLevel3Member 2020-12-31 0000768411 cybe:CorporateDebtSecuritiesAndCertificatesOfDepositMember us-gaap:FairValueInputsLevel3Member 2020-12-31 0000768411 us-gaap:AssetBackedSecuritiesMember us-gaap:FairValueInputsLevel3Member 2020-12-31 0000768411 us-gaap:EquitySecuritiesMember us-gaap:FairValueInputsLevel3Member 2020-12-31 0000768411 2020-12-31 0000768411 2020-01-01 2020-12-31 0000768411 us-gaap:ShortTermInvestmentsMember 2020-12-31 0000768411 us-gaap:OtherLongTermInvestmentsMember 2020-12-31 0000768411 us-gaap:TransferredOverTimeMember 2020-01-01 2020-12-31 0000768411 us-gaap:TransferredAtPointInTimeMember 2020-01-01 2020-12-31 0000768411 cybe:MrsBasedSensorsMember 2020-01-01 2020-12-31 0000768411 us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember cybe:CustomerTwoMember 2020-01-01 2020-12-31 0000768411 cybe:MrsBasedSystemsMember 2020-01-01 2020-12-31 0000768411 us-gaap:AccountingStandardsUpdate201409Member us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2020-01-01 2020-12-31 0000768411 cybe:InspectionAndMetrologySystemsMember 2020-01-01 2020-12-31 0000768411 cybe:HighPrecision3DAnd2DSensorsMember 2020-01-01 2020-12-31 0000768411 us-gaap:CommonStockMember 2019-01-01 2019-12-31 0000768411 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-12-31 0000768411 us-gaap:RetainedEarningsMember 2019-01-01 2019-12-31 0000768411 us-gaap:CommonStockMember 2019-12-31 0000768411 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31 0000768411 us-gaap:RetainedEarningsMember 2019-12-31 0000768411 us-gaap:AccumulatedTranslationAdjustmentMember 2019-01-01 2019-12-31 0000768411 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-01-01 2019-12-31 0000768411 us-gaap:USTreasuryAndGovernmentMember us-gaap:FairValueInputsLevel1Member 2019-12-31 0000768411 us-gaap:USTreasuryAndGovernmentMember us-gaap:FairValueInputsLevel2Member 2019-12-31 0000768411 us-gaap:USTreasuryAndGovernmentMember us-gaap:FairValueInputsLevel3Member 2019-12-31 0000768411 us-gaap:AccumulatedTranslationAdjustmentMember 2019-12-31 0000768411 cybe:CorporateDebtSecuritiesAndCertificatesOfDepositMember us-gaap:FairValueInputsLevel1Member 2019-12-31 0000768411 cybe:CorporateDebtSecuritiesAndCertificatesOfDepositMember us-gaap:FairValueInputsLevel2Member 2019-12-31 0000768411 cybe:CorporateDebtSecuritiesAndCertificatesOfDepositMember us-gaap:FairValueInputsLevel3Member 2019-12-31 0000768411 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-12-31 0000768411 us-gaap:AssetBackedSecuritiesMember us-gaap:FairValueInputsLevel1Member 2019-12-31 0000768411 us-gaap:AssetBackedSecuritiesMember us-gaap:FairValueInputsLevel2Member 2019-12-31 0000768411 us-gaap:AssetBackedSecuritiesMember us-gaap:FairValueInputsLevel3Member 2019-12-31 0000768411 us-gaap:USTreasuryAndGovernmentMember 2019-12-31 0000768411 cybe:CorporateDebtSecuritiesAndCertificatesOfDepositMember 2019-12-31 0000768411 us-gaap:AssetBackedSecuritiesMember 2019-12-31 0000768411 us-gaap:EquitySecuritiesMember 2019-12-31 0000768411 us-gaap:FairValueInputsLevel1Member 2019-12-31 0000768411 us-gaap:FairValueInputsLevel2Member 2019-12-31 0000768411 us-gaap:FairValueInputsLevel3Member 2019-12-31 0000768411 us-gaap:EmployeeStockOptionMember 2019-01-01 2019-12-31 0000768411 cybe:RestrictedSharesAndRestrictedStockUnitsMember 2019-01-01 2019-12-31 0000768411 us-gaap:EmployeeStockMember 2019-01-01 2019-12-31 0000768411 cybe:StockOptionsAndRestrictedStockUnitsRsusMember 2019-01-01 2019-12-31 0000768411 cybe:StockGrantPlanForNonEmployeeDirectorsMember 2019-01-01 2019-12-31 0000768411 srt:MinimumMember 2019-01-01 2019-12-31 0000768411 srt:MaximumMember 2019-01-01 2019-12-31 0000768411 us-gaap:EquipmentMember 2019-12-31 0000768411 us-gaap:LeaseholdImprovementsMember 2019-12-31 0000768411 us-gaap:PatentsMember 2019-12-31 0000768411 us-gaap:ComputerSoftwareIntangibleAssetMember 2019-12-31 0000768411 us-gaap:CustomerRelatedIntangibleAssetsMember 2019-12-31 0000768411 us-gaap:PatentsMember 2019-01-01 2019-12-31 0000768411 us-gaap:ComputerSoftwareIntangibleAssetMember 2019-01-01 2019-12-31 0000768411 us-gaap:CustomerRelatedIntangibleAssetsMember 2019-01-01 2019-12-31 0000768411 cybe:RetirementSavingsPlanSection401KMember 2019-01-01 2019-12-31 0000768411 cybe:DefinedContributionRetirementSavingsPlansMember 2019-01-01 2019-12-31 0000768411 cybe:HighPrecision3DAnd2DSensorsMember 2019-01-01 2019-12-31 0000768411 us-gaap:EquitySecuritiesMember us-gaap:FairValueInputsLevel1Member 2019-12-31 0000768411 cybe:SemiconductorSensorsMember 2019-01-01 2019-12-31 0000768411 cybe:InspectionAndMetrologySystemsMember 2019-01-01 2019-12-31 0000768411 cybe:MrsBasedSensorsMember 2019-01-01 2019-12-31 0000768411 cybe:MrsBasedSystemsMember 2019-01-01 2019-12-31 0000768411 country:US 2019-01-01 2019-12-31 0000768411 country:NL 2019-01-01 2019-12-31 0000768411 cybe:OtherEuropeMember 2019-01-01 2019-12-31 0000768411 country:CN 2019-01-01 2019-12-31 0000768411 country:SG 2019-01-01 2019-12-31 0000768411 country:KR 2019-01-01 2019-12-31 0000768411 country:JP 2019-01-01 2019-12-31 0000768411 cybe:OtherAsiaMember 2019-01-01 2019-12-31 0000768411 cybe:OtherGeographicLocationMember 2019-01-01 2019-12-31 0000768411 us-gaap:EquitySecuritiesMember us-gaap:FairValueInputsLevel2Member 2019-12-31 0000768411 country:US 2019-12-31 0000768411 srt:EuropeMember 2019-12-31 0000768411 cybe:AsiaAndOtherMember 2019-12-31 0000768411 us-gaap:EquitySecuritiesMember us-gaap:FairValueInputsLevel3Member 2019-12-31 0000768411 us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember 2019-12-31 0000768411 us-gaap:CustomerConcentrationRiskMember cybe:ExportRevenuesMember 2020-01-01 2020-12-31 0000768411 us-gaap:CustomerConcentrationRiskMember cybe:ExportRevenuesMember 2019-01-01 2019-12-31 0000768411 us-gaap:USTreasuryAndGovernmentMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0000768411 cybe:CorporateDebtSecuritiesAndCertificatesOfDepositMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0000768411 us-gaap:AssetBackedSecuritiesMember us-gaap:ShortTermInvestmentsMember 2019-12-31 0000768411 us-gaap:USTreasuryAndGovernmentMember us-gaap:OtherLongTermInvestmentsMember 2019-12-31 0000768411 us-gaap:TransferredOverTimeMember 2019-01-01 2019-12-31 0000768411 us-gaap:TransferredAtPointInTimeMember 2019-01-01 2019-12-31 0000768411 cybe:CorporateDebtSecuritiesAndCertificatesOfDepositMember us-gaap:OtherLongTermInvestmentsMember 2019-12-31 0000768411 us-gaap:CustomerConcentrationRiskMember us-gaap:SalesRevenueNetMember cybe:CustomerTwoMember 2019-01-01 2019-12-31 0000768411 us-gaap:AssetBackedSecuritiesMember us-gaap:OtherLongTermInvestmentsMember 2019-12-31 0000768411 us-gaap:EquitySecuritiesMember us-gaap:OtherLongTermInvestmentsMember 2019-12-31 0000768411 2018-12-31 0000768411 us-gaap:ShortTermInvestmentsMember 2019-12-31 0000768411 us-gaap:OtherLongTermInvestmentsMember 2019-12-31 0000768411 cybe:NonEmployeeDirectorStockPlanMember 2019-05-16 2019-05-16 0000768411 2020-01-01 2020-03-31 0000768411 2020-04-01 2020-06-30 0000768411 2020-07-01 2020-09-30 0000768411 2020-10-01 2020-12-31 0000768411 2020-06-30 0000768411 us-gaap:AccumulatedTranslationAdjustmentMember 2018-12-31 0000768411 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-12-31 0000768411 2021-02-28 0000768411 cybe:GoldenValleyMember 2020-12-31 0000768411 us-gaap:CommonStockMember us-gaap:AccountingStandardsUpdate201602Member srt:RevisionOfPriorPeriodChangeInAccountingPrincipleAdjustmentMember 2018-12-31 0000768411 us-gaap:AccumulatedOtherComprehensiveIncomeMember us-gaap:AccountingStandardsUpdate201602Member srt:RevisionOfPriorPeriodChangeInAccountingPrincipleAdjustmentMember 2018-12-31 0000768411 us-gaap:RetainedEarningsMember us-gaap:AccountingStandardsUpdate201602Member srt:RevisionOfPriorPeriodChangeInAccountingPrincipleAdjustmentMember 2018-12-31 0000768411 us-gaap:AccountingStandardsUpdate201602Member srt:RevisionOfPriorPeriodChangeInAccountingPrincipleAdjustmentMember 2018-12-31 0000768411 srt:MinimumMember 2020-12-31 0000768411 srt:MaximumMember 2020-12-31 0000768411 country:SG cybe:JobsSupportProgramMember us-gaap:ReducedEmployeeExpensesMember 2020-01-01 2020-12-31 0000768411 us-gaap:CustomerConcentrationRiskMember cybe:CustomerOneMember us-gaap:AccountsReceivableMember 2020-12-31 0000768411 us-gaap:CustomerConcentrationRiskMember cybe:CustomerTwoMember us-gaap:AccountsReceivableMember 2020-12-31 0000768411 srt:AffiliatedEntityMember 2020-01-01 2020-12-31 0000768411 srt:AffiliatedEntityMember 2019-01-01 2019-12-31 0000768411 cybe:NonEmployeeDirectorStockPlanMember 2020-05-14 2020-05-14 0000768411 us-gaap:CustomerConcentrationRiskMember us-gaap:AccountsReceivableMember cybe:CustomerThreeMember 2020-12-31 0000768411 us-gaap:AccountingStandardsUpdate201602Member 2019-12-31 xbrli:shares xbrli:pure utr:sqft utr:Q iso4217:USD iso4217:USD xbrli:shares cybe:plan cybe:reporting_unit cybe:renewal_option cybe:customer

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-K


x ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange 

Act of 1934 for the Year Ended December 31, 2020.

 

o TRANSITION PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange

Act of 1934 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


Securities registered pursuant to Section 12(g) of the Exchange Act: None 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No

 

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 ☑ No ☐

 

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

 

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 standard provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the company has filed an attestation report regarding management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accountants that audited the company's financial statements. Yes ☐ No


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

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $225,286,757


As of February 28, 2021, there were 7,297,867 shares of the registrant’s Common Stock, no par value, issued and outstanding.  

 

DOCUMENTS INCORPORATED BY REFERENCE:

 

The responses to Part III items 10, 11, 12, 13 and 14 herein are incorporated by reference to certain information in the Company’s definitive Proxy Statement for its Annual Meeting of Shareholders to be held May 13, 2021.



CYBEROPTICS CORPORATION 

FORM 10-K

For the Fiscal Year Ended December 31, 2020


TABLE OF CONTENTS 

 



PART I.   2
ITEM 1. DESCRIPTION OF BUSINESS 2
ITEM 1A. RISK FACTORS 13
ITEM 1B. UNRESOLVED STAFF COMMENTS  19
ITEM 2. PROPERTIES 19
ITEM 3. LEGAL PROCEEDINGS 19
ITEM 4. MINE SAFETY DISCLOSURES 19
PART II. 20
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 20
ITEM 6. SELECTED FINANCIAL DATA 20
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 58
ITEM 9A. CONTROLS AND PROCEDURES 58
ITEM 9B. OTHER INFORMATION 58
PART III. 59
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 59
ITEM 11. EXECUTIVE COMPENSATION 59
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 59
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 59
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 59
PART IV. 60
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 60
SIGNATURES 62

 

 

PART I.

 

ITEM 1. DESCRIPTION OF BUSINESS

 

GENERAL


Background

 

CyberOptics Corporation was founded in 1984 and is a leading global developer and manufacturer of high precision sensing technology solutions and system products for inspection and metrology. Our headquarters are located at 5900 Golden Hills Drive in Golden Valley, Minnesota. Our website address is www.cyberoptics.com. You can access, free of charge, our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, at our website, or at the Commission’s website at www.sec.gov. Proxy materials for our upcoming 2021 annual shareholders meeting to be held on May 13, 2021 will be available electronically via the internet at the following address: http://www.idelivercommunications.com/proxy/cybe/.


We are a leading global developer and manufacturer of high precision 3D sensors and system products for inspection and metrology. We also develop and manufacture our WaferSense® products, a family of wireless, wafer-shaped sensors that provide measurements of critical factors in the semiconductor fabrication process. We intend to leverage our sensor technologies in the surface mount technology (SMT) and semiconductor industries to deliver profitable growth. A key element of our strategy is the continued development and sale of high precision 3D sensors and system products based on our proprietary Multi-Reflection Suppression™ (MRS) technology. We believe that our MRS technology is a breakthrough 3D optical technology for high-end inspection and metrology with the potential to significantly expand our markets. Another key element in our strategy is the continued development and introduction of new sensor applications for our WaferSense family of products.    


Our products are used in the SMT and semiconductor industries to significantly improve our customers' manufacturing yields and productivity, and to assist our customers in meeting their rigorous demands for manufacturing quality. Our products use a variety of proprietary technologies such as lasers, optics and machine vision, combined with software, electronics and mechanical design. Our products help manufacturers solve their most complex manufacturing challenges by providing them with key information relating to their manufacturing processes, which allows them to improve production volumes, yields and product quality.


Manufacturing yield challenges as electronics and semiconductors become more complex are driving the need for more precise inspection and metrology. As a result, we believe 3D inspection and metrology represent high-growth segments in both the SMT and semiconductor capital equipment markets. We expect a growing number of opportunities in the markets for SMT and semiconductor inspection and metrology, because our 3D MRS technology platform is well suited for many of these applications, particularly with respect to complex circuit boards and semiconductor wafer and advanced packaging inspection and metrology applications.


We manufacture 3D and 2D optical sensors for use in our own proprietary inspection system products and for sale to original equipment manufacturers (OEMs), system integrators and end customers in the SMT and semiconductor capital equipment markets. Our inspection system products are sold to manufacturers of SMT electronic circuit boards to control quality as in-line systems, particularly with respect to complex circuit boards used in smart phones and other high-end electronic products. These products are used by manufacturers to measure screen-printed solder paste, to inspect circuit boards and components after component placement, to confirm proper placement after full assembly of circuit boards and to inspect solder joints on printed circuit boards. We also sell our inspection system products to leading semiconductor manufacturers and outsourced semiconductor assembly and test (OSAT) companies. Manufacturers of DRAM and Flash Memory use our inspection system products to inspect assembly of their memory modules. Increasingly, our inspection system products are being used for various semiconductor related inspection and metrology applications, including advanced packaging.


We believe that a strategy of developing and selling complete inspection systems and metrology products to end-users provides us with valuable customer input in the markets we currently serve, and allows us to refine the sensors and sensor subsystems for these markets and adjacent markets. At the same time, sales to OEMs and system integrators allow us to capitalize on our strengths in optical physics, sensor design and software algorithm development. We believe that the resulting sensor products and subsystems are unique and add significant value to our products and the products of our customers.


Our WaferSense family of products assist with yield improvement and tool uptime in semiconductor wafer fabrication and flat panel display manufacturing by providing highly accurate measurements of critical process factors. These measurements are impossible or very difficult to obtain without powering down the equipment used for wafer fabrication and flat panel display manufacturing. Customers who use our products have better yields, through-put and tool up-time. Our products are more accurate when compared to the various manual techniques historically used by semiconductor manufacturers to obtain critical wafer fabrication process measurements. We have continued to invest in our WaferSense product family and anticipate strong future sales growth for these products. 


2


Covid-19 was first identified in December 2019, 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. However, the Covid-19 outbreak has had a relatively minimal impact on our business to date. Our revenues increased by 18% to $70.1 million in 2020, from $59.3 million in 2019. We are forecasting modest revenue growth in the first quarter of 2021. Our forecast for the first quarter of 2021 could change if the Covid-19 pandemic worsens, or if unforeseen events related to the pandemic occur. We currently do not anticipate any significant credit losses or asset impairments resulting from the Covid-19 pandemic. As of December 31, 2020, our available balances of cash and marketable securities totaled $30.6 million. We believe that we have the resources required to attain our growth objectives and to meet any unforeseen difficulties resulting from the Covid-19 pandemic. We will continue to closely monitor the Covid-19 pandemic and its impact on our business. There have been recent spikes in Covid-19 cases, and some health experts have predicted that the Covid-19 pandemic may worsen in the coming months.


Our ability to implement our strategy effectively is subject to numerous uncertainties and risks, including the risks identified in Item 1A of this Annual Report on Form 10-K. There can be no assurance that our strategy will be successful.  

 

OPERATIONS AND PRODUCTS

 

Multi-Reflection Suppression Technology


We have successfully launched a number of products based on our 3D MRS technology, including our SQ3000™ Multi-Function systems (SQ3000 and SQ3000 3D CMM) for inspection and metrology, MX3000 memory module inspection system and our recently introduced 3D NanoResolution MRS™ sensor and WX3000 inspection and metrology system for semiconductor wafer and advanced packaging inspection and metrology. We are continually developing new high precision 3D sensors and system products based on our proprietary MRS technology. We believe 3D inspection and metrology represent a high growth segment for both the SMT and semiconductor capital equipment markets. Our recent and planned product introductions are designed to strengthen our competitive position in our current markets and expand into adjacent markets.


Challenges with shrinking transistor dimensions has driven the need for advances in semiconductor packaging applications, including 3D stacking of chips. Accordingly, advanced semiconductor packaging is expected to experience significant growth in the next 5 to 10 years. Micro electromechanical systems devices (MEMS) are now being used for many advanced applications. Yield challenges with these products are driving the need for inspection and metrology, and we believe our 3D MRS technology platform is well suited for many of these applications. We are introducing new products based on our MRS technology that we believe will allow us to capitalize on these opportunities and increase our revenues in the future.


We have significantly advanced our 3D MRS sensor technology as part of a research initiative aimed at applying our 3D MRS sensor technology to semiconductor advanced packaging inspection and metrology. Our next generation ultra-high resolution 3-micron pixel 3D NanoResolution MRS sensor and WX3000 inspection and metrology system perform two to three times faster than alternate technologies at data processing speeds in excess of 75 million 3D data points per second. The 3D NanoResolution MRS sensor and WX3000 system perform 100% 3D and 2D inspection and metrology simultaneously at high speeds, deliver throughput of more than 25 wafers per hours and are capable of accurately measuring feature sizes down to 25 microns, which makes these products suitable for many semiconductor wafer and advanced packaging inspection and metrology applications. We anticipate that sales of sensors and systems based on 3D MRS technology, including for semiconductor wafer and advanced packaging inspection and metrology, will provide us with long-term growth opportunities. 


We intend to expand sales of products based on our MRS technology in the SMT and semiconductor markets through current and new distribution channels, OEM partners, system integrators and direct sales to end-user customers. 

 

High Precision 3D and 2D Sensors

 

We manufacture high precision sensors for inspection and metrology in the SMT and semiconductor markets. We sell our 3D MRS sensors to OEMs and system integrators for use in their proprietary system products, and we integrate our 3D MRS sensors into our own proprietary system products for inspection and metrology. Our SMT electronic assembly alignment sensor products are a family of sensors that are customized and incorporated into the equipment manufactured by our customers for use in SMT circuit board assembly. We work closely with our OEM customers and system integrators to incorporate our high precision 3D and 2D sensors into their product offerings. Sales of high precision 3D and 2D sensors accounted for 25% of our revenues in 2020 and 21% of our revenues in 2019. 


3


3D MRS Sensors 

 

Our proprietary 3D MRS sensor technology enables metrology grade accuracy by inhibiting optical measurement distortions and reflections. Our sensor architecture simultaneously captures and transmits multiple images in parallel while proprietary 3D fusing algorithms merge the images together. The result is ultra-high quality 3D images and high-speed inspection. Our 3D MRS sensors are used for inspection and metrology in a variety of applications, including SMT (printed circuit boards), CPU sockets, solder balls and bumps, wafer bumps, copper pillars and other semiconductor wafer and advanced packaging applications. Our 3D MRS sensors can also be used for industrial metrology. Our high precision 3D MRS sensors are based on commercially available cameras, digital light projectors and other hardware components, which are combined with our proprietary MRS technology, 3D fusing algorithms and precision optics. The combination of these elements allow our sensors to capture microscopic quality images at production speeds. Our 3D MRS sensors include six models featuring varying fields of view (FOV), 3D acquisition time and minimum feature sizes. Our next generation ultra-high resolution three-micron pixel 3D NanoResolution MRS sensor is capable of measuring feature sizes down to 25 microns accurately and at high speeds, and is suitable for many semiconductor wafer and advanced packaging inspection and metrology applications. We are targeting one micron, three-sigma accuracy, at speeds that would inspect more than 25 300-millimeter wafers in an hour. Sales of high precision 3D MRS sensors accounted for 17% of our revenues in 2020 and 10% of our revenues in 2019.  

 

SMT Electronic Assembly Alignment Sensors

 

Our LaserAlign® sensors align both large and extremely small surface mount and through-hole components, known as chip capacitors and resistors, during transport on a pick-and-place machine prior to placement. LaserAlign sensors are incorporated into the placement heads of pick-and-place machines to ensure accurate component placement at high production speeds. LaserAlign sensors integrate an intelligent sensor, composed of a laser, optics and detectors with a microprocessor and software for making specific measurements. LaserAlign sensors enable quick and accurate alignment of each component as it is being transported by the pick-and-place arm for surface mount or through-hole assembly. Using non-contact technology, LaserAlign sensors facilitate orientation and placement of components at higher speeds than can be achieved using conventional mechanical or machine vision component centering systems.


Our board alignment cameras are used to identify fiducial markings on a circuit board to ensure accurate board registration in a pick-and-place machine or a solder paste screen printer. Accurate board placement is needed to ensure proper placement of solder paste deposits and components on a printed circuit board. In some instances, our board alignment cameras are used for 2D solder paste and stencil inspection.


Sales of SMT Electronic Assembly Alignment Sensors accounted for 8% of our revenues in 2020 and 10% of our revenues in 2019.


Inspection and Metrology Systems

 

Our inspection and metrology system products are primarily used in the SMT and semiconductor industries for process control, inspection and metrology. These systems are sold to end-user manufacturing customers that use them in a production line or alongside a production line to maintain process and quality control. Our products incorporate our proprietary 3D and 2D optical sensors, off the shelf, translation or robotics hardware and conveyors and complete computer systems or processors with internally developed software. Sales of inspection and metrology systems accounted for 54% of our revenues in 2020 and 55% of our revenues in 2019.

 

Automated Optical Inspection (AOI) Products

 

We have been selling AOI products for well over a decade and have continued to develop and improve our AOI offerings since they were first introduced. These products are typically used to inspect circuit boards after component placement to determine whether all components have been placed correctly, and to measure the quality of solder joints after reflow. These products can also be used for various semiconductor related inspection and metrology applications, including wafer and advanced packaging applications, and for certain industrial metrology applications. 


SQ3000 Multi-Function systems (SQ3000 and SQ3000 3D CMM). Our SQ3000 Multi-Function systems for AOI, solder paste inspection (SPI) and coordinate measurement (CMM) applications, are designed to expand our presence in markets requiring high precision inspection and metrology. In these markets, identifying defects has become highly challenging and critical due to smaller semiconductor and electronics packaging and increasing component density on circuit boards. We believe the combination of our proprietary 3D MRS sensor technology, Ai2 (Autonomous Image Interpretation) software and sophisticated 3D fusing algorithms allows us to offer microscopic image quality at production line speeds. The SQ3000 is an all-in-one solution for AOI and SPI in a single product. The SQ3000 3D CMM goes a step further by adding metrology functionality. Manufacturers in a variety of industries, including the SMT and semiconductor markets, can use the SQ3000 3D CMM as an in-line or off-line metrology tool to help solve complex manufacturing and product quality challenges.  


We believe there are a growing number of sales opportunities for our SQ3000 Multi-Function systems in the markets for SMT and semiconductor inspection and metrology. We believe our 3D MRS sensor technology is uniquely suited for many of these applications. Our SQ3000 Multi-Function systems are available in versions that can accommodate dual production lanes and larger circuit board sizes. Sales of SQ3000 Multi-Function systems accounted for 27% of our revenues in 2020 and 30% of our revenues in 2019.


4

 

QX Series 2D AOI products. Our QX AOI systems feature our strobe inspection module (SIM) sensor technology and are designed for 2D inspection of circuit boards. We offer QX products with varying levels of resolution and inspection speeds. We also offer versions of the QX product that can accommodate dual production lanes, larger circuit board sizes and both top and bottom inspection of a circuit board.

 

MX products. Our MX products are used for inspection of memory modules following the singulation step of the manufacturing process. Our MX600™ system utilizes our SIM sensor technology and Ai2 software, and is used for 2D inspection of memory modules. Our MX3000™ system utilizes our 3D MRS sensor technology, SQ3000 system software and Ai2 software, and is used for 3D inspection of memory modules. We recently received purchase orders for the MX3000 valued at $4.2 million for multiple subcontractors of a large memory manufacturer. These orders are expected to be recognized as revenue in the second and third quarters of 2021. Two of the world’s three largest memory manufacturers now use either our 2D MX600 or 3D MX3000 memory module inspection systems. We believe the potential market opportunity for the MX3000 system is significant.


SPI Products

 

SE3000™. The SE3000 is an in-line system solder paste inspection system based on our 3D MRS sensor technology. The SE3000 measures in 3D the amount of solder paste applied to a circuit board after the first step of the SMT circuit board assembly process. Because of the small size of the components that must be placed on each pad of solder paste and the density of components placed on the circuit board, a significant amount of SMT assembly problems are related to the quality of solder paste deposition. Misplaced solder paste or excess or inadequate amounts of paste can lead to improper connections or bridges between leads causing an entire circuit board to malfunction. The SE3000 inspects the height, area and volume of solder paste placed on an entire circuit board at production line speeds and with resolution that allows the SE3000 to measure the smallest chip scale packages and micro ball array component sites. The SE3000 can be integrated into most SMT production lines, providing real time quality control immediately after a printed circuit board leaves the screen printer and before component placement commences. 


SE600. The SE600 is an in-line solder paste inspection system incorporating a dual-illumination sensor that measures in 3D the height, area and volume of solder paste placed on an entire circuit board at production line speeds. The SE600 can be integrated into most SMT production lines.


SE500ULTRA. The SE500ULTRA is an in-line solder paste inspection system incorporating the same proprietary 3D inspection technology as the SE600 but utilizes a single illumination sensor. The SE500ULTRA inspects at faster speeds than the SE3000 or SE600 and is intended for use in high-volume production environments. Because the SE500ULTRA performs inspections at very high speed, it does not provide the same level of resolution and measurement performance as the SE3000 or SE600.


Semiconductor Wafer and Advanced Packaging Products


Our new WX3000 system is suitable for many semiconductor wafer and advanced packaging inspection and metrology applications. The WX3000, which incorporates our next generation ultra-high resolution 3D NanoResolution MRS sensor, performs 100% 3D and 2D inspection and metrology simultaneously at high speeds and delivers throughput of more than 25 wafers per hour. We believe the WX3000 performs two to three times faster than alternate technologies at data processing speeds in excess of 75 million 3D data points per second. The WX3000 is suitable for many high volume semiconductor wafer and advanced packaging inspection and metrology applications for feature sizes down to 25 microns.


General Industrial Metrology Products and Services

 

CyberGage®360Manufacturers in a variety of industries use CyberGage360 as a near-line or off-line metrology tool to capture surface data to help solve complex manufacturing and product quality challenges. Our sales of CyberGage360 to date have not been significant. There can be no assurance that CyberGage360 will ever achieve widespread market acceptance.


Other Metrology Products and Services. We also sell 3D scanning and metrology equipment manufactured by other suppliers and provide 3D scanning and metrology services for objects of all sizes and complexity for customers that do not have their own 3D scanning and metrology equipment. 


5


Semiconductor Sensors

 

Our principal semiconductor products, the WaferSense family of products, are a series of wireless sensors that provide measurements of critical factors in the semiconductor fabrication process. We designed our WaferSense family of sensors to be used where wafers or reticles are located in semiconductor fabrication to provide measurements of critical factors that are currently impossible or extremely difficult to obtain without powering down the fabrication process equipment. Because the user is not required to break down semiconductor fabrication equipment when using our WaferSense products, significant time is saved. In addition, measurement accuracy is increased over the accuracy of the manual techniques currently used by many customers when checking the process parameters measured by our WaferSense products. As a result of WaferSense technology, our customers are able to improve the up-time, through-put and process yield for their semiconductor fabrication equipment. We intend to continue to enhance and expand the WaferSense family of products in the future. Sales of semiconductor sensors accounted for 21% of our revenues in 2020 and 24% of our revenues in 2019.


Automatic Leveling Sensor (ALS). The ALS is a wireless, vacuum-compatible sensor that can be placed in cassettes, FOUPS, on-end effectors, aligners, in-load locks and process chambers used in semiconductor fabrication to ensure that all stations are level and coplanar.

 

Automatic Gapping Sensor (AGS). The AGS is a gapping tool that measures the gap in three places between the showerhead and pedestal in semiconductor process equipment. The amount of gap between the showerhead and pedestal can affect uniformity when material is deposited on semiconductor wafers.

 

Automatic Teaching Sensor (ATS). The ATS measures X-Y-Z offset from robotic transfers of wafers to the pedestal in semiconductor process equipment. The amount of gap and offset after robotic transfer of wafers to the shower pedestal can affect film thickness and uniformity when material is deposited or etched on semiconductor wafers, impacting quality and product yields. 

 

Automatic Vibration Sensor (AVS). The AVS measures X-Y-Z acceleration for shock and vibration, which can generate wafer particles, scratches or wafer breakage that reduce yield. 

 

WaferSense Airborne Particle Sensor™. The WaferSense airborne particle sensors (APS) allow engineers to efficiently detect and classify particles and their exact sources in a process as wafers are transferred, slit valves are actuated and chambers are cycled, pumped down and purged. APS sensors are designed to be compatible with front-ends, coater/developer tracks, and deposition and etch equipment. ReticleSense® Airborne Particle Sensors allow users to quickly identify geographic particle sources in reticle environments. The ReticleSense Airborne Particle Sensor is compatible with ASML, Nikon and Canon scanners and can travel the entire reticle path to detect in real-time when and where particles might exist. The ReticleSense Airborne Particle Sensor helps our customers exceed manufacturing quality and productivity standards in the Photo lithography scanner environment.


In-Line Particle Sensor™. The In-Line Particle Sensor (IPS™) with CyberSpectrum software detects particles in gas and vacuum lines 24/7 in semiconductor process equipment. The IPS quickly identifies, monitors and enables troubleshooting of particles down to 0.1 micron in size. The IPS can be installed in any gas or vacuum system, and is particularly relevant for EUV lithography tools where the ability to monitor particles in-line can significantly improve EUV lithography tool yield and productivity. For example, an IPS can be installed at the vacuum line in between the EUV process chamber and the vacuum pump, saving significant time compared to current methods of sending a monitor dummy reticle into the EUV system to check for particles before and after sending the reticle into the EUV system. The IPS is constantly collecting data, which is especially critical during chamber purging. Process and equipment engineers in semiconductor fabs can increase the speed of equipment qualification. Contamination sources can be identified quickly and the effects of cleaning, adjustments and repairs can be seen in real-time. Through use of the IPS, fabs can shorten equipment maintenance cycles, lower equipment expenses and optimize preventative maintenance plans.


WaferSense Auto Multi Sensor™. The WaferSense Auto Multi Sensor is an all-in-one wireless real-time device that allows engineers to quickly take leveling, vibration and humidity measurements. Humidity measurements are becoming more important as the use of Fin Field Effect Transistor technology increases among semiconductor manufacturers. The ReticleSense Auto Multi Sensor allows users to quickly take leveling, vibration and humidity measurements in reticle environments.


WaferSense 300mm Auto Resistance Sensor™. The WaferSense 300mm Auto Resistance Sensor(ARS™) with CyberSpectrum software enables real-time resistance measurements of plating cell contacts in semiconductor Electrochemical Deposition (ECD) applications. The ARS quickly identifies and monitors resistance measurements with 50 separate pads around the perimeter utilizing a Kelvin sensing (4-wire resistance) method to detect residue affecting plating pins. Process and equipment engineers in semiconductor fabs can predict when a tool needs maintenance with quantitative analysis of measured mean resistance over time, shorten equipment maintenance cycles, and improve cell-to-cell uniformity with the wafer-like, 4-wire resistance sensor and CyberSpectrum software's objective and repeatable data.


WaferSense Auto Vibration and Leveling Sensor.  The WaferSense Auto Vibration and Leveling Sensor (AVLS3) with a thickness of 3.5mm can travel to most locations and tools within a semiconductor fab where a real semiconductor wafer travels. The Chemically Hardened Glass (CHG) substrate enables smooth wafer handling and improved vacuum chucking. The AVLS3, with CyberSpectrum software, collects and displays both vibration and leveling data simultaneously for fast equipment set-up and alignment and real-time equipment diagnostics to speed equipment qualification and shorten equipment maintenance cycles.


6


Markets and Customers 

 

We sell the majority of our products into the markets for SMT and semiconductor inspection and metrology. The value of automation is high in these markets because the products produced have high unit costs and are manufactured at speeds too great for effective human involvement. Trends in these markets include further efforts to reduce the cost of the manufacturing process and to increase automation. Moreover, the trend toward smaller electronic devices with higher circuit densities, smaller circuit paths and extremely small components requires manufacturing and testing equipment capable of extremely accurate alignment and multidimensional measurement. Challenges with shrinking transistor dimensions has driven the need for advances in semiconductor packaging applications, including 3D stacking of chips. Yield challenges with these products are driving the need for more accurate inspection and metrology. We expect a growing number of opportunities in the markets for SMT and semiconductor inspection and metrology, because our 3D MRS technology platform is well suited for many of these applications.


High Precision 3D and 2D Sensors


3D MRS Sensors


We sell our 3D MRS sensors to OEM customers for use in semiconductor component package inspection. We have an agreement to supply Nordson-YESTECH with 3D MRS sensors for its 3D AOI inspection equipment serving the SMT market. We sell our 3D MRS sensors, including our next generation ultra-high resolution 3D NanoResolution MRS sensor, to OEMs and system integrators that make capital equipment for semiconductor manufacturers and OSAT's. We believe sales of 3D MRS sensors for semiconductor wafer and advanced packaging inspection and metrology applications represent compelling long-term growth opportunities. We estimate that the total available market for sales of our 3D MRS sensors to manufacturers of inspection and metrology equipment for the semiconductor wafer and advanced packaging inspection and metrology market was approximately $60 million in 2020, and will grow to approximately $150 million in 2025. We have just started selling our 3D MRS sensors for use in semiconductor wafer and advanced packaging inspection and metrology equipment and our sales to date have not been significant.


SMT Electronic Assembly Alignment Sensors


The vast majority of our SMT electronic assembly alignment sensors are sold on an OEM basis to Juki Corporation, Kulicke & Soffa Industries, Inc. and ASM Pacific Technology Ltd. for integration into DEK brand equipment serving the SMT circuit board assembly market. Viscom AG purchases our SPI sensors on an OEM basis for integration into their SPI inspection equipment. 


Inspection and Metrology Systems

 

We sell our AOI and SPI inspection and metrology systems to many of the leading SMT electronic assembly circuit board manufacturers, end-user customers manufacturing their own circuit boards, semiconductor manufacturers and OSAT companies. Manufacturers of DRAM and Flash Memory use our inspection system products to inspect assembly of their memory modules. Sales of AOI systems account for roughly two-thirds of the approximately $800 million total annual SPI and AOI SMT inspection systems market, with 3D AOI representing the fastest growing segment of this market. We estimate that the total available market for sales of 3D AOI systems to the SMT inspection systems and metrology markets was approximately $250 million in 2020, and will grow to approximately $1.4 billion by 2025. The markets for 3D and 2D semiconductor wafer and advanced packaging inspection and metrology equipment totals approximately $500 million per year.


The total available market for general industrial metrology equipment is very large, diverse and growing. Our 3D scanning and metrology services scan, model and inspect objects of all sizes and complexity for customers who do not have their own scanning and metrology equipment.


Semiconductor Sensors

 

Our semiconductor products, primarily our WaferSense family of products, are used by process and equipment engineers as non-contact precision measurement tools to optimize the process for production of semiconductor wafers and manufacturing of flat panel displays. Most of the world’s largest manufacturers of semiconductors and semiconductor equipment purchase our WaferSense products. We believe the available market for our WaferSense products is potentially significant, and will continue to increase in the future as new product applications are added.


7


Export Sales and Significant Customers

 

Export sales totaled $56.0 million or 80% of our total sales in 2020, compared to $44.8 million or 76% of our total sales in 2019. Export sales represent a large percentage of our total sales because a large portion of electronics assembly and semiconductor production occurs outside the United States. In addition, a significant portion of our export sales include high precision 3D and 2D sensors sold to OEM customers located in Europe and Asia. See Note 13 to our consolidated financial statements contained in Item 8 of this Annual Report on Form 10-K for information regarding the percentage of total sales revenue represented by total export sales (sales of products into countries other than the United States, including sales delivered through distributors) by location during the past two years. Most of our international export sales are negotiated, invoiced and paid in U.S. dollars. We manufacture our inspection system products in Singapore and a portion of our raw material purchases are denominated in Singapore dollars. We also have R&D and sales personnel located in Singapore and sales offices located in other parts of the world. Although currency fluctuations do not significantly affect our revenue, they can impact our costs and influence the price competitiveness of our products and the willingness of existing and potential customers to purchase our products.


In 2020, sales to our largest customer accounted for 14% of our total revenues, and sales to our second largest customer accounted for 13% of our total revenues. No other customer accounted for more than 10% of our total revenues in 2020. No customer accounted for more than 10% of our total revenues in 2019.

 

Sales and Marketing


We market our products by offering on-site demonstrations and evaluations, through appearances at industry trade shows, advertising in industry journals, articles published in industry and technical journals and on the Internet. We support our sales efforts by utilizing internet-based search engine marketing programs to generate leads from prospects who have expressed interest in obtaining the types of products and services that we offer.


High Precision 3D and 2D Sensors

 

Our high precision 3D and 2D sensors are sold in most countries to OEMs and system integrators by direct sales personnel located in Minnesota and Asia. Some of the global channel partners for our other products also market our high precision 3D MRS sensors to system integrators and semiconductor manufacturers.


Inspection and Metrology Systems

 

Our AOI and SPI inspection and metrology system products are sold in most countries. We have just started marketing our new WX3000 system for semiconductor wafer and advanced packaging inspection and metrology. Sales and marketing of our AOI, SPI and WX3000 system products are more heavily concentrated in Asia where a significant portion of the worldwide production capacity for circuit board assembly and semiconductor manufacturing occurs. Our AOI, SPI and WX3000 system products are sold by direct sales personnel located in the United States, the United Kingdom, Singapore, Taiwan and China and through independent sales representatives and distributors. We have sales and service team members based in the United States and Mexico to serve the Americas market. Our sales and service office in the United Kingdom serves the European market. We have sales and service offices in Singapore, Taiwan and China to serve the markets for SMT and semiconductor inspection and metrology equipment in Asia. We have agreements with 43 independent sales representatives and distributors, which focus on sales and service of our AOI, SPI and WX3000 inspection and metrology system products to end-user customers. These agreements cover North and South America (14), Europe (16) and China and Asia-Pacific (13). We sell our general industrial metrology products and services to end-user customers mainly through a direct sales staff located in Minnesota.


Semiconductor Sensors


We sell our semiconductor products, primarily our WaferSense family of products, to semiconductor fabrication facilities through a separate worldwide sales channel of independent sales representatives and distributors. We also sell our WaferSense products directly to large OEM customers, which are mainly semiconductor capital equipment manufacturers. We currently have agreements in place or in process with 14 independent sales representatives and distributors, which focus on sales and service for our WaferSense products. These agreements cover the United States (4), Europe (3) and the Asia-Pacific (7). Our sales to OEM customers and our worldwide network of independent sales representatives and distributors are managed by direct sales personnel located in the United States and Asia. 

 

8


Backlog and Seasonality

 

Product backlog was $23.0 million at December 31, 2020, $17.7 million at December 31, 2019 and $13.6 million at December 31, 2018. Product backlog at September 30, 2020 was $17.7 million. Our products are typically shipped two weeks to six months after the receipt of an order. However, in some cases we have received orders from OEM customers which cover a period of several years. Sales of some inspection and metrology system products may require customer acceptance due to performance or other acceptance criteria included in the terms of sale. For these product sales, revenue is recognized at the time of customer acceptance. Although our business is generally not of a highly seasonal nature, sales may vary based on the capital procurement practices in the SMT and semiconductor fabrication industries. However, we are not able to quantify with any level of precision the impact of these practices on our sales in any given quarterly period, and any seasonal cyclicality is often masked by more dramatic changes in demand caused by the normal volatility in electronics and semiconductor markets that are associated with changes in the economy. Our scheduled backlog at any time may vary significantly based on the timing of orders from OEM customers or the receipt of large orders for inspection and metrology system products. 

 

Research and Development

 

We differentiate our products primarily on the basis of innovative and proprietary technology and on our ability to combine several different technologies to address industry and customer needs. In addition, we actively seek ongoing strategic customer relationships with leading product innovators in existing and new markets. We actively investigate the needs of, and seek input from, these customers to facilitate the adoption of current innovative technologies and to identify opportunities to improve manufacturing processes. 


We commit substantial resources to the development of important next-generation technologies that, we believe, will position us to be a global technology leader in high precision 3D sensors and capture additional market share in our key markets of SMT and semiconductor inspection and metrology. We maintain our commitment to research and development and product development even during periods when strong demand in the markets for our products does not exist. During the past two years, research and development efforts have been focused on a number of activities that are critical to our future growth and success, including the following: 

  

  

Our next generation ultra-high resolution three-micron pixel 3D NanoResolution MRS sensor is capable of measuring feature sizes down to 25 microns accurately and at high speeds. We are targeting one micron, three-sigma accuracy, at speeds that would inspect more than 25 300-millimeter wafers in an hour. The 3D NanoResolution MRS sensor is suitable for many semiconductor wafer and advanced packaging inspection and metrology applications. We have adapted the system software used in our SQ3000 Multi-Function systems to work with wafer handling equipment to facilitate sales of our NanoResolution sensor to OEMs and system integrators.



Additional new MRS sensors for semiconductor component package inspection and metrology, in-line CPU socket metrology and semiconductor wafer and advanced packaging inspection and metrology applications.


Our next generation MX3000 system for 3D inspection of memory modules following the singulation step of the manufacturing process. The MX3000 utilizes our MRS sensor technology, SQ3000 system software and Ai2 software. We recently received purchase orders for the MX3000 valued at $4.2 million for multiple subcontractors of a large memory manufacturer. These orders are expected to be recognized as revenue in the second and third quarters of 2021.  


Our new system, WX3000, for semiconductor wafer and advanced packaging inspection and metrology. The WX3000, which utilizes our 3D NanoResolution MRS sensor and SQ3000 system software, performs 100% 3D and 2D inspection and metrology simultaneously at high speeds and delivers throughput of more than 25 wafers per hour. We believe the WX3000 performs two to three times faster than alternate technologies at data processing speeds in excess of 75 million 3D data points per second. The WX3000 is suitable for many high volume semiconductor wafer and advanced packaging inspection and metrology applications for feature sizes down to 25 microns.

  


We have continued to advance our SQ3000 Multi-Function systems for 3D AOI, SPI and CMM applicationswhich are designed to expand our presence in markets requiring high precision inspection and metrology. Improvements include faster programming time and more software features to support new applications. We believe there are a growing number of sales opportunities for our SQ3000 Multi-Function systems in the markets for 3D AOI of complex circuit boards and semiconductor inspection and metrology.  

  

  

Development of new semiconductor products, including new applications for our WaferSense family of products. We recently launched an In-Line Particle Sensor (IPS) to detect particles in gas and vacuum lines 24/7 in semiconductor process equipment. We also recently launched a WaferSense 300mm Auto Resistance Sensor (ARS) that enables real-time resistance measurements of plating cell contacts in semiconductor ECD applications. Other new WaferSense products are under development which have the potential to expand our market opportunity in the future, including next generation ATS products.

 

9


Research and development expenses were $9.6 million or 14% of revenue in 2020 and $9.4 million or 16% of revenue in 2019. Research and development expenses consist primarily of salaries, project materials, contract labor and other costs associated with ongoing product development and enhancement efforts. Research and development resource utilization is centrally managed based on market opportunities and the status of individual projects.

 

Manufacturing

 

All of our high precision 3D and 2D sensors and semiconductor sensors are assembled at our Minneapolis, Minnesota headquarters facility. Our inspection and metrology systems, including our SQ3000 Multi-Function system products, are assembled in Singapore. We rely on third party automation suppliers to provide the material handling platforms for our 2D MX600, 3D MX3000 and WX3000 system products. Much of our product manufacturing, which is primarily circuit board manufacturing, lens manufacturing and metal parts production, is performed by outside contractors. Our production personnel inspect incoming parts, perform final assembly, calibrate and perform final quality control testing of finished products. We have elected not to make the capital investments necessary for complete internal manufacturing of our products. 


A variety of components used in our products are available only from single sources and involve relatively long order cycles, in some cases up to six months. We believe we have identified alternative assembly contractors for most of our sub-assemblies. Use of those alternative contractors could require substantial rework of the product designs, resulting in periods during which we could not satisfy customer orders. An actual change in such contractors would likely require a period of training and testing. 

 

Accordingly, an interruption in a supply relationship or reduced production capacity experienced by one or more of such contractors could result in the inability to deliver one or more of our products for a period of several months. To help prevent delays in the shipment of our products, we maintain in inventory, or on scheduled delivery from suppliers, components that we believe will be sufficient to meet forecasted demand, often times for a minimum of six months or longer.


Competition

 

We face competition from a number of companies in the machine vision, image processing and inspection and metrology systems markets, many of which are larger and have greater financial resources than we do. However, we believe our current and planned products offer advantages from competing products in terms of price and suitability for specific applications. 


High Precision 3D and 2D Sensors


Our high precision 3D and 2D sensors mainly compete with the sensors and vision systems developed by OEMs using their own design employees for incorporation into their products. Some of the competitors in the capital equipment markets for SMT inspection, semiconductor component package inspection and semiconductor wafer and advanced packaging inspection and metrology rely on 3D sensors manufactured by Keyence Corporation. We believe the advantages offered by our 3D MRS sensor technology and SQ system software allow our customers, including OEMs and system integrators, to compete favorably in these markets.


Our SMT electronic assembly alignment sensor products compete with vision (camera and software-based) systems and component libraries available from Cognex Corporation and others. Although advances in vision systems have reduced some of the advantages of our SMT electronic assembly alignment sensor products in some configurations, we continue to believe that our sensors compete favorably based on our ability to custom design products with stringent physical form requirements, speed, flexibility, low cost and ease of use.


Inspection and Metrology Systems


The primary competition for sales of our AOI and SPI inspection and metrology system products has been from Korean-based companies, including Koh Young Technology, MirTec Ltd., and PARMI Co. Ltd. We also compete with Taiwanese-based Test Research, Inc. and German-based Viscom AG, among others. In our view, the 3D MRS sensor technology, system software and Ai2 software used in our SQ3000 Multi-Function systems differentiate our products from competing products and that our products compete effectively in the SMT inspection systems and metrology markets based on performance, ease of use and the low rate of false calls. We also believe that our SQ3000 Multi-Function systems, enabled by our proprietary MRS technology, 3D fusing algorithms and precision optics, offer advantages over competing products and will allow us to gain market share based on our ability to offer microscopic quality images at fast production line speeds.  


The markets for semiconductor wafer and advanced packaging inspection and metrology equipment are fragmented. Our competitors in the markets for semiconductor wafer and advanced packaging inspection and metrology equipment include, among others, Camtek, Inc., Unity SC, Utechzone Co. Ltd. and Onto Innovation, Inc.  


The multi-billion dollar market for 3D scanning and metrology products is highly fragmented. The primary competition for the various metrology products and solutions we sell include coordinate-measuring machines sold by Hexagon, Zeiss and others, and assorted other 3D measurement products offering varying combinations of speed and accuracy, including X-ray systems. The market for 3D scanning and metrology services is dominated by small regional market participants. 


10


Semiconductor Sensors

 

We believe our semiconductor sensors, primarily consisting of our WaferSense family of products, are unique to the marketplace and mainly face competition from the manual techniques currently used by most customers to monitor their semiconductor fabrication or flat panel display manufacturing equipment. For some WaferSense applications, there are other products available in the marketplace that are capable of monitoring semiconductor fabrication equipment, but these competing solutions are typically not wireless or fully automated like our WaferSense products. We believe that our WaferSense products provide more reliable and accurate measurements than the manual techniques currently in use or other solutions currently available in the marketplace. In a semiconductor fabrication environment, we believe that our WaferSense products save significant time because the user is not required to break down process equipment, or pressurize a vacuum chamber, which improves tool up-time, through-put and process yield. 


Employees

 

As of December 31, 2020, we had 183 full-time employees worldwide, including 41 in sales, marketing and customer support, 57 in manufacturing, purchasing and production operations, 66 in engineering, research and development, and 19 in finance, administration and information services. Of these employees, 108 are located at our corporate headquarters in Minneapolis, Minnesota and 75 are located in other offices (7 in other states throughout the U.S., 5 in the United Kingdom, 47 in Singapore, 6 in China, 5 in Taiwan, 2 in Mexico, 1 in Malaysia, 1 in Japan and 1 in Korea). Although we have been successful in attracting and retaining qualified technical personnel, there is an ongoing need for more employees with advanced degrees and training in mathematics, optical physics and other key disciplines. There can be no assurance that we will be able to successfully retain or recruit qualified technical personnel in the future. None of our employees are covered by collective bargaining agreements or are members of a union.


Proprietary Protection

 

We rely on the technical expertise and know-how of our personnel and trade secret protection, as well as on patents, to maintain our competitive position. We attempt to protect intellectual property by restricting access to proprietary methods by a combination of technical and internal security measures. In addition, we make use of non-disclosure agreements with customers, consultants, suppliers and employees. Nevertheless, there can be no assurance that any of the above measures will be adequate to protect our proprietary technology, and it is possible that any of our products could be duplicated by other companies in the same markets in which we participate.


We hold 53 patents (28 U.S. and 25 foreign) on a number of technologies, including the technologies used in our SQ3000 Multi-Function systems for AOI, SPI and CMM applications; other SMT inspection systems; MRS high-precision 3D sensors; SMT electronic assembly alignment sensors, SIM sensors and semiconductor sensors, primarily consisting of our WaferSense wireless measurement devices; and other products. In addition, we have 44 pending patents (10 U.S. and 34 foreign). We protect the proprietary nature of our software primarily through copyright and license agreements, and also through close integration with our hardware offerings. We utilize 31 registered trademarks (12 U.S. and 19 foreign) and have 4 trademark registrations pending. We also have 12 domain names and several common law trademarks. It is our policy to protect the proprietary nature of our new product developments whenever they are likely to become significant sources of revenue. No guarantee can be given that we will be able to obtain patent or other protection for other products. 

 

As the number of our products increases and the functionality of those products expands, we may become increasingly subject to attempts to duplicate our proprietary technology. As a result, we may be required to bring patent infringement lawsuits against parties that have duplicated our proprietary technology. We periodically receive communications from third parties asserting that our products infringe, or may infringe, the proprietary rights of these third parties or others. 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 lawsuits or claims could also cause product delays, require us to redesign our products, hinder our ability to sell our products, or make the sale of these products more expensive. In addition, although we do not believe that any of our products infringe the rights of others, there can be no assurance that third parties will not assert infringement claims in the future or that any such assertion will not require us to enter into a royalty arrangement or result in litigation. 

 

Government Regulation

 

Our business is subject to many foreign, federal, state and local legal and regulatory requirements, including among others those related to securities, employment, international trade, anticorruption, health, safety and the environment. Significant costs may arise from these requirements, or from new, modified or more stringent requirements, which could affect our operations and competitive position. 

 

 

Note Regarding Forward-Looking Statements


This Annual Report on Form 10-K contains, or incorporates by reference, not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act, and that are subject to the safe harbors created by such sections. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as “anticipate,” “estimate,” “will,” “should,” “expect,” “target,” “believe,” “intend,” “seek,” “plan,” “goals,” “future,” “likely,” “may,” and similar expressions or their negative forms, or by references to strategy, plans, or intentions. These forward-looking statements are subject to risks and uncertainties, including, among other things, those described in this Annual Report on Form 10-K under the caption “Risk Factors.” Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected are described below and may be described from time to time in reports we file with the Securities and Exchange Commission, or the SEC, including our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise any such forward-looking statements, whether as a result of new information, future events, or otherwise.

 

Important factors, among others, that may affect our actual results include: a possible world-wide recession or depression resulting from the economic consequences of the COVID-19 pandemic; the negative effect on our revenue and operating results of the COVID-19 crisis on our customers and suppliers and the global supply chain; market conditions in the global SMT and semiconductor capital equipment industries; trade relations between the United States and China and other countries; the timing of orders and shipments of our products, particularly our 3D MRS SQ3000 Multi-Function systems and MX systems for memory module inspection; increasing price competition and price pressure on our product sales, particularly our SMT systems; the level of orders from our OEM customers; the availability of parts required to meet customer orders; unanticipated product development challenges; the effect of world events on our sales, the majority of which are from foreign customers; rapid changes in technology in the electronics and semiconductor markets; product introductions and pricing by our competitors; the success of our 3D technology initiatives; the market acceptance of our SQ3000 Multi-Function inspection and measurement systems and products for semiconductor advanced packaging inspection and metrology; costly and time consuming litigation with third parties related to intellectual property infringement; the negative impact on our customers and suppliers due to past and future terrorist threats and attacks and any acts of war; the impact of the MX3000 orders on our consolidated gross margin percentage in any future period; and risks related to cancellation or renegotiation of orders we have received. Our ability to implement our strategy effectively is subject to numerous uncertainties and risks, including the risks identified in Item 1A of this Annual Report on Form 10-K. There can be no assurance that our strategy will be successful.  


12



ITEM 1A. RISK FACTORS

 

Our operations are subject to a number of risks and uncertainties that may affect our financial results, and the accuracy of the forward looking statements we make in this Annual Report on Form 10-K. We make statements regarding anticipated product introductions and performance, changes in markets, customers and customer order rates, expenditures in research and development, growth in revenue and improvement in gross profit margins and profits, taxation levels, the effects of product pricing, and competition, all of which represent our expectations and beliefs about future events. Our actual results may vary from these expectations because of a number of factors that affect our business. The most important of these factors include the following: 


Risks Related to the Global Economy and Public Health Crises




The Covid-19 pandemic has significantly and negatively impacted worldwide economic conditions that could have a material adverse effect on our operations and business in the future. The Covid-19 pandemic is likely to continue to affect our business, especially if government authorities continue to impose or re-impose mandatory closures, shelter-in-place mandates and social distancing protocols, and seek voluntary facility closures or impose other restrictions. Recently, some domestic and foreign governments have taken actions to re-open their economies. However, as a result of increased cases of Covid-19 infections and deaths, certain domestic and foreign governments have taken steps to reverse some of these re-opening initiatives. Actions to impede spread of Covid-19 could materially adversely affect our ability to adequately staff and maintain our operations and negatively impact long-term research and development projects. Global travel restrictions could continue to hinder our ability to obtain timely customer acceptance for some product sales, thereby negatively impacting our revenue and operating results. Our global supply chain has been and may continue to be disrupted, which could negatively affect our sales, ability to provide products to our customers and ability to service our customers. In addition, the economic disruptions caused by the Covid-19 outbreak could prevent customers from paying us for our products and result in significant credit losses. A prolonged global recession or depression resulting from the Covid-19 pandemic most likely would have a significant negative impact on our revenue and operating results, and could lead to asset impairment charges. As we cannot predict the duration or scope of the Covid-19 pandemic, the anticipated negative financial impact to our operating results cannot be reasonably estimated, but could be material and last for an extended period of time.  





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. Economic uncertainties affect businesses such as ours in a number of ways, making it difficult to accurately forecast and plan our future business activities, and negatively impacting our operating results. Economic instability or uncertainty could cause 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, system integrators and equipment manufacturers that purchase our sensors, and the semiconductor and SMT manufacturers that purchase our WaferSense® and inspection and metrology system products, are largely dependent on continued demand for consumer and commercial electronics, including smartphones, 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 general purpose metrology products and services are also dependent upon the health of the global economy and the competitiveness of the end products manufactured by the customers we serve. Our results would be adversely affected in the future if these economies were to experience recessions, or if the products manufactured by our end customers are not successful in the marketplace. 




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 specific countries, such as China, Singapore, Taiwan and Japan, in which we do business. Natural disasters have affected travel patterns and accessibility in these countries in the past and other natural occurrences 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. 




Global trade conflicts may negatively impact our sales and results of operations. Ongoing trade conflicts with other countries, particularly China, may impact our sales and results of operations. Concerns over the impact of the U.S. and China trade war on the global economy may cause our customers to refrain from making investments in capital equipment, which would negatively impact our sales. We or our suppliers source certain raw materials and components from China. If the United States were to increase existing tariff levels or impose new tariffs, our supply chain and costs would be negatively impacted, resulting in an increase in our cost structure and negatively impacting our operating profits.



  

  

We generate approximately 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, pandemics or other events that may affect local economies and our access to markets outside the U.S. 




Exchange rate fluctuations may have a significant negative impact on our revenue and results of operations. Most of our international export sales are negotiated, invoiced and paid in U.S. dollars. Significant fluctuations in the value of the U.S. dollar relative to other currencies could have a negative impact on the price competitiveness of our products relative to foreign competitors and the willingness of customers to purchase our products. 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, the new Taiwan dollar and the Chinese Yuan. 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. Fluctuations in the relationship between the U.S. dollar and the currencies of other geographies could have a significant negative impact on our future revenue, costs and results of operations.  


Risks Related to Our Products and Customer Preferences


The markets for capital equipment in the SMT and semiconductor industries in which we operate are cyclical, and market downturns have occurred, such as the industry-wide slowdown in demand for SMT and semiconductor capital equipment that we experienced in 2019. We operate in cyclical markets – the SMT and semiconductor capital equipment markets – that periodically adjust independent of global economic conditions. For example, sluggish conditions in the markets for SMT and semiconductor capital equipment emerged late in the fourth quarter of 2018 and continued through the third quarter of 2019. In the past, we have not been able to predict with accuracy the timing or magnitude of periodic downturns in these markets. Some of these downturns have 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 economic conditions may have on our business.


We have recently introduced or are in the process of introducing a number of products based upon our 3D MRS technology, the failure of new products employing this technology to achieve acceptance in the marketplace would materially adversely affect our future anticipated operating results. We have incorporated our MRS technology into various products, including our next generation ultra-high resolution 3-micron pixel 3D NanoResolution MRS sensor, other 3D MRS sensor offerings, WX3000 system, MX3000 system and SQ3000™ Multi-Function systems. We also expect to use this technology in other new products, including next generation sensors and systems for semiconductor component package inspection, semiconductor wafer and advanced packaging inspection and metrology. 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 these products attractive, or if we are unable to efficiently identify new customers and new applications for these products given our current sales channels, our operating results for 2021 and longer-term growth in revenue and operating results would be materially adversely affected.


14



Sales of sensors to five OEM customers constituted 23% of our revenues in 2020, and the loss of any of these customers could have a materially adverse impact on our results of operations. If the order rates from these five OEM customers are negatively impacted by global economic events 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.

  

  

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, including semiconductor component package, semiconductor wafer and advanced packaging inspection and 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, and our future revenue and operating results would be negatively impacted.

  

 

The market for most SMT capital equipment has become more mature and price competitive. The electronics capital equipment market for surface mount technologies is becoming more mature, resulting in increased price pressure on suppliers of this type of equipment. Consequently, our SMT inspection systems and SMT electronic assembly alignment sensor products have become subject to increased levels of price competition and competition from other suppliers, which may or may not utilize different technology, including lower cost Asian based suppliers.    

 

 

The market for 3D AOI equipment for printed circuit board inspection has become more price competitive, which has negatively impacted our margins. Pricing for 3D AOI equipment for inspection of printed circuit boards with less demanding features and complexity has become more competitive, resulting in increased price pressure. In some instances, our SQ3000 Multi-Function systems compete in the marketplace for inspection of printed circuit boards in which the inspection requirements are less complex and stringent. In this segment of the market, we have experienced competitive pressures that have reduced the sales prices, which in turn has negatively impacted our revenue and gross margins. If this level of competition were to increase in the future, our revenue and gross margins would be negatively impacted. 

  

 

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 equipment, the customer generally relies upon that 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.  

   
Risks Related to Our Business


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 and metrology systems, which is influenced by economic conditions in our markets and the overall health of the global economy; demand for products that use circuit boards and semiconductors; market acceptance of our products and those that have integrated our 3D MRS sensors into their product offerings, including OEM's and system integrators; competition; seasonal variations in customer demand; the timing, cancellation or delay of customer orders, particularly our SQ3000 Multi-Function systems, 3D MX3000 and 2D MX600 memory module inspection systems; the timing of product shipments and related customer acceptances; and product development and other costs, including increased research, development, engineering and marketing expenses associated with our introduction of new products and product enhancements, and ongoing sales and marketing activities.


Our development and assembly operations in Singapore, and our sales operations in Asia and Europe, are subject to unique risks because of the remote nature of the operations. Our Singapore development and manufacturing operations, and our Asian and European sales operations, present a number of risks. These risks relate 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 and other matters relating to foreign operations. Our financial performance, ability to serve our customers and ability to manufacture and sell products in Asia and Europe could be negatively impacted if we are unable to retain our Asian and European 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 components for our products manufactured in Asia.


15



Our ability to compete in the markets for our products is dependent upon our ability to recruit new capable channel partners and direct sales employees and the sales skills of our channel partners and employees. In order to generate significant incremental revenue in the future, we need to expand and enhance our sales capabilities by recruiting new, high quality channel partners and sales employees. Our efforts to increase the size and capability of our direct sales team and channel partners will increase our cost structure. If we are unable to successfully improve our direct sales team and sales channel, our future sales will be negatively impacted, and we will not obtain an adequate return on the increase in our cost structure, including obtaining an adequate return on our investment in research and development. To the extent our competitors have relationships with stronger channel partners, it may be difficult for us to achieve significant incremental revenue, even if our products are technologically superior. 


Competitors in Asia may be able to compete favorably with us based on lower production and employee costs, greater financial resources and larger sales distribution networks. We compete with large multinational companies when selling our inspection and metrology system products. These competitors 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. 

    


We are exposed to credit risk through sales to our OEM customers and distributors of our inspection and metrology system 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 inspection and metrology system 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. 

    


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.

    


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 and products. There has been an increasing incidence of unauthorized access to the computer networks of various technology companies. 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.

    


We must attract, engage, retain and integrate key research and development employees in order to be successful, and failure to do so could have an adverse effect on our ability to profitably grow our business. Identifying, hiring, developing, training and retaining highly-skilled research and development employees is critical to our future, and competition for these types of employees is intense. Failure to successfully hire key research and development employees or the loss of key research and development employees could have a significant negative impact on our ability to create innovative new products, effectively compete in the markets we serve, and on our ability to profitably grow our business.


We are dependent on several key employees, including Dr. Subodh Kulkarni, our President and Chief Executive Officer, for new product innovation and much of the sales, marketing and business development activity related to our products (especially our MRS sensors). These key employees perform a critical role for us with respect to product strategy and new product development. Also, they have been instrumental in development and expansion of our relationships with key OEM customers, system integrators and others. If the employment of Dr. Kulkarni and other key employees with CyberOptics were to end for any reason, our ability to develop innovative products and achieve sustained long-term revenue growth may be negatively impacted. 


Risks Related to Legal and Regulatory Proceedings


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.



16


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. Our failure to obtain or maintain trade secret protection might adversely affect our ability to continue our research or bring products to market.



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. We periodically receive communications from third parties asserting that our products infringe, or may infringe, the proprietary rights of these third parties or others. 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 lawsuits or 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 patent infringement litigation or claims could hinder our ability to sell our products, or make the sale of these products more expensive.



Risks Related to Financial and Capital Markets and Tax Matters


We have significant deferred tax assets recorded on our balance sheet, and our ability to utilize these deferred tax assets is dependent on our ability to generate sufficient profits in future periods. A change in income tax laws or a further 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. 

  

  

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 and inspection and measurement systems 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. 

  

17



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 7,294,617 shares of our common stock outstanding as of December 31, 2020. Although our common stock is traded on the NASDAQ Stock 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.

  


18

 
ITEM 1B. UNRESOLVED STAFF COMMENTS 

Not applicable.

 

ITEM 2. PROPERTIES

 

We lease a 61,208 square foot mixed office and warehouse facility built to our specifications in Golden Valley, Minnesota, which functions as our corporate headquarters and primary manufacturing facility for our sensor products, including those used in our inspection and metrology system products. Our lease for the Golden Valley facility expires July 31, 2026, contains a rent escalation clause and one renewal option of five years.  

 

We lease a 19,805 square foot mixed office and warehouse facility in Singapore that serves as a sales, development and final assembly and integration facility for our inspection and metrology system products. Our lease for the Singapore facility expires on July 24, 2023.

 

As of December 31, 2020, we also have operating leases for small facilities in Taiwan, the United Kingdom and China, which expire in June 2023, May 2023 and November 2022, respectively. 

 

ITEM 3. LEGAL PROCEEDINGS


We are not currently subject to any material pending or threatened legal proceedings.

 

ITEM 4. MINE SAFETY DISCLOSURES


Not applicable.

 

 

PART II.

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our common stock is traded on the Nasdaq Global Market under the trading symbol "CYBE". 

 

As of February 28, 2021, there were approximately 200 holders of record of our common stock and approximately 5,500 beneficial holders. We have never paid a dividend on our common stock. Dividends are payable at the discretion of the Board of Directors out of funds legally available. Our Board has no current intention of paying dividends.


In July 2019, our Board of Directors authorized a $3.0 million share repurchase program which expired on June 30, 2020. There were no share repurchases under this program in 2020 prior to its expiration. In 2019, we spent $353,000 under this program to repurchase 25,985 shares of our common stock. We also withhold common shares to cover employee tax withholding obligations from the exercise of stock options and the vesting of restricted stock units. In the three months ended December 31, 2020, we withheld 7,393 shares to satisfy employee tax withholding requirements of $185,000. In the year ended December 31, 2020, we withheld 23,068 shares to satisfy employee tax withholding requirements of $605,000.


ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable.

 

 

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview


We are a leading global developer and manufacturer of high precision 3D sensors and system products for inspection and metrology. We also develop and manufacture our WaferSense® products, which is a family of wireless, wafer-shaped sensors that provide measurements of critical factors in the semiconductor fabrication process. We intend to leverage our sensor technologies in the surface mount technology (SMT) and semiconductor industries to deliver profitable growth. A key element of our strategy is the continued development and sale of high precision 3D sensors and system products based on our proprietary Multi-Reflection Suppression™ (MRS) technology. We believe that our MRS technology is a breakthrough 3D optical technology for high-end inspection and metrology with the potential to significantly expand our markets. Another key element in our strategy is the continued development and introduction of new sensor applications for our WaferSense family of products. 


Our operating results in 2019 were affected by the cyclical, industry-wide slowdown in demand for SMT and semiconductor capital equipment as well as uncertainty surrounding the global trade environment. We believe that the three months ended September 30, 2019 marked the trough of the downturn in the SMT and semiconductor capital equipment markets. We believe that conditions in the SMT and semiconductor capital equipment markets started to strengthen in 2020 and will remain solid through 2021. Over the longer-term (i.e., the next several years), we expect a growing number of opportunities in the markets for SMT and semiconductor inspection and metrology. We believe that our 3D MRS sensor and system products and our WaferSense family products have the potential to expand our presence in the markets for SMT and semiconductor capital equipment.  

 

Manufacturing yield challenges as electronics and semiconductors become more complex are driving the need for more precise inspection and metrology. We believe 3D inspection and metrology represent high-growth segments in both the SMT and semiconductor capital equipment markets. We believe our 3D MRS technology platform is well suited for many applications in these markets, particularly with respect to complex circuit boards and semiconductor wafer and advanced packaging inspection and metrology applications. We are taking advantage of current market trends by deploying our 3D MRS sensor technology in the following products:

  

  

·

Our SQ3000™ Multi-Function systems for Automated Optical Inspection (AOI), Solder Paste Inspection (SPI) and coordinate measurement (CMM) applicationswhich are designed to expand our presence in markets requiring high precision inspection and metrology. In these markets, identifying defects has become highly challenging and critical due to smaller semiconductor and electronics packaging and increasing component density on circuit boards. We believe our 3D MRS sensor technology used in our products is uniquely suited for many of these applications because of its ability to offer microscopic image quality and superior measurement performance at production line speeds.

  

  

·

Our next generation MX3000 AOI system for 3D inspection of memory modules following the singulation step of the manufacturing process. We recognized our first revenue from the sale of the MX3000 in the first quarter of 2020. In the fourth quarter of 2020, we received new purchase orders for the MX3000 valued at $4.2 million. We expect to recognize the revenue from these orders in the second and third quarters of 2021.


  

·

Our next generation ultra-high resolution three micron pixel 3D NanoResolution MRS sensor, which is capable of measuring feature sizes down to 25 microns accurately and at high speeds, and is suitable for many semiconductor wafer and advanced packaging inspection and metrology applications. We have adapted the software used in our SQ3000 Multi-Function systems to work with wafer handling equipment to facilitate sales of our 3DNanoResolution MRS sensor to OEM's and system integrators.



· Our new WX3000™ metrology and inspection system for semiconductor wafer and advanced packaging applications, which incorporates our next generation ultra-high resolution 3D NanoResolution MRS sensor. The WX3000 platforms performs 100% 3D and 2D inspection and metrology simultaneously at high speeds and delivers throughput of more than 25 wafers per hour. We believe the WX3000 performs two to three times faster than alternate technologies at data processing speeds in excess of 75 million 3D data points per second. The WX3000 is suitable for many semiconductor wafer and advanced packaging inspection and metrology applications for feature sizes down to 25 microns. We anticipate that sales of sensors and systems based on our 3D MRS technology for semiconductor wafer and advanced packaging inspection and metrology applications will provide us with long-term growth opportunities. 

 

Revenue from MRS based products, including 3D AOI systems and high precision 3D MRS sensors, increased by $7.9 million or 33% to $31.8 million in 2020, from $23.9 million in 2019. Over the long term, we anticipate continued increases in sales of products based on our MRS technology in the SMT and semiconductor capital equipment markets. In particular, we believe inspection and metrology for micro LED, memory modules and semiconductor wafer and advanced packaging applications represent significant long-term growth opportunities. We anticipate increasing sales of MRS-based products by selling them to new OEM customers and system integrators, and by expanding direct sales of inspection and metrology system products to end-user customers. 


21

 

We have continued to invest in our WaferSense family of products, because fabricators of semiconductors and other customers view these products as valuable tools for improving yields and productivity. We have recently introduced several new WaferSense products to further increase our revenue growth, including the In-Line Particle Sensor (IPS). This sensor detects particles in gas and vacuum lines in semiconductor process equipment, and is particularly relevant for EUV lithography tools. Additional WaferSense applications are under development. Over the long-term, strong future sales growth is anticipated for our WaferSense family of products. 


Our backlog was $23.0 million at December 31, 2020, an increase from $17.7 million at September 30, 2020, and $17.7 million at December 31, 2019. We are forecasting sales of $16.5 to $17.5 million for the first quarter of 2021. Our forecast for the first quarter of 2021 does not include any significant new orders for SQ3000 Multi-Function systems for micro LED inspection and metrology or MX systems for memory module inspection. We believe that demand in the SMT and semiconductor capital equipment markets will remain solid through 2021. However, an increase in the severity of the current Covid-19 outbreak, or a resulting prolonged economic recession or depression, could cause a slow-down in demand for SMT and semiconductor capital equipment. Over the long term, we believe anticipated sales growth of our products based on 3D MRS technology and WaferSense sensors should increase revenues and net income. We believe that we have the resources required to attain our growth objectives, given our available cash and marketable securities balances totaling $30.6 million at December 31, 2020.


Impact from Covid-19

 

Effect of Covid-19 Outbreak on Business Operations 

 

Covid-19 was first identified in December 2019, 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. However, the Covid-19 outbreak has had a relatively minimal impact on our business to date. Our revenues increased by 18% to $70.1 million in 2020, from $59.3 million in 2019. We are forecasting revenues of $16.5 to $17.5 million for the first quarter of 2021, up modestly from $16.4 million in the first quarter of 2020. Our forecast for the first quarter of 2021 could change if the Covid-19 pandemic worsens, or if unforeseen events related to the pandemic occur. The most significant impacts on our business from the Covid-19 pandemic include the following: 


·

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 that could change if the pandemic worsens and is more than temporary.



·
Sales of some products, mainly our SQ3000 Multi-Function 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 for certain of our products at various times in 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.


· Total operating expenses were reduced in 2020 due to the Covid-19 pandemic. Wage costs were reduced in 2020 by approximately $410,000 from a jobs support program implemented by the government of Singapore. In addition, travel, trade show and other costs were reduced due to changes in employee travel patterns and trade show cancellations.


· 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 any supply disruptions with minimal impact on our sales or ability to service customers. We presently do not expect that supply chain disruptions will have a significant impact on our revenue in the first quarter of 2021. 


22


We currently do not anticipate any significant credit losses or asset impairments resulting from the Covid-19 pandemic. As of December 31, 2020, our available balances of cash and marketable securities totaled $30.6 million. We believe that we have the resources required to attain our growth objectives and to meet any unforeseen difficulties resulting from the Covid-19 pandemic. However, we will continue to closely monitor the Covid-19 pandemic and its impact on our business. There have been recent spikes in Covid-19 cases, and some health experts have predicted that the Covid-19 pandemic will worsen in the coming months.


United States Covid-19 Relief Legislation

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was signed into law. 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. On December 27, 2020, a second relief package, the Consolidated Appropriations Act, 2021, was signed into law which set aside funding for additional loans under the Paycheck Protection Program established by the CARES Act. We have analyzed both pieces of legislation and presently do not believe they will have a material impact on our financial condition, results of operations or liquidity. However, we will continue to monitor the impact that these pieces of legislation could have on our business in the future.

 

Singapore Jobs Support Program

 

As stated above, the Singapore Government implemented a jobs support program in 2020 that was 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 co-funded a portion of the gross monthly wages paid to local employees, which reduced our operating expense by $410,000 in 2020. We do not expect to receive any material benefit from the Singapore jobs support program in 2021. 


Our ability to implement our strategy effectively is subject to numerous uncertainties and risks, including the risks identified in Item 1A of this Annual Report on Form 10-K.

 

Revenues

 

Our revenues increased by 18% to $70.1 million in 2020, from $59.3 million in 2019, and decreased by 8% to $59.3 million in 2019, from $64.7 million in 2018. The following table sets forth, for the years indicated, revenues by product line:

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

2020

 

2019

 

2018

High precision 3D and 2D sensors

 

$

17,522

 

 

$

12,579

 

 

$

21,532

 

Inspection and metrology systems

 

37,547

 

 

32,713

 

 

29,582

 

Semiconductor sensors

 

15,048

 

 

13,971

 

 

13,606

 

Total

 

$

70,117

 

 

$

59,263

 

 

$

64,720

 


Revenues from sales of high precision 3D and 2D sensors increased by $4.9 million or 39% to $17.5 million in 2020, from $12.6 million in 2019, and decreased by $9.0 million or 42% to $12.6 million in 2019, from $21.5 million in 2018. The revenue increase in 2020 was due to higher sales of 3D MRS sensors resulting from improving conditions in the global semiconductor capital equipment market, higher adoption rates by existing OEM customers and sales of 3D MRS sensors to new OEM customers and system integrators. The revenue decrease in 2019 resulted from a reduction of purchases by OEM customers for high precision 3D and 2D sensors due to weak demand in the global SMT and semiconductor capital equipment markets.


Sales of high precision 3D and 2D sensors are dependent on the success of our OEM customers and system integrators selling products that incorporate our sensors. We believe sales of our 3D MRS sensors, including our next generation ultra-high resolution three micron pixel 3D NanoResolution MRS sensor, will represent an increasing percentage of our total high precision 3D and 2D sensor sales. Sales of high precision 3D and 2D sensors, including 3D MRS sensors, are prone to significant quarterly fluctuations due to variations in market demand and customer inventory levels. 


Revenues from sales of inspection and metrology systems increased by $4.8 million or 15% to $37.5 million in 2020, from $32.7 million in 2019, and increased by $3.1 million or 11% to $32.7 million in 2019, from $29.6 million in 2018. The revenue increases in both periods were mainly due to higher sales of SQ3000 Multi-Function systems and MX memory module inspection systems. Sales of SQ3000 Multi-Function systems increased by $1.4 million or 8% to $18.9 million in 2020, from $17.5 million in 2019, and increased by $4.6 million or 36% in 2019, from $12.9 million in 2018. Sales of 2D and 3D MX memory module inspection systems totaled $6.7 million in 2020, compared to $3.3 million in 2019 and $1.1 million in 2018. 


23


We believe the increase in sales of SQ3000 Multi-Function systems in 2020 and 2019 was due to the competitive advantages offered by our SQ3000 Multi-Function system products, and resulted from many companies transitioning from 2D to 3D AOI systems to meet the increasingly demanding product inspection and metrology requirements in the SMT and semiconductor markets. The market transition away from 2D AOI systems is expected to result in an industry-wide 20% compound annual rate of growth in global sales of 3D AOI systems through 2025. In addition, we believe the performance advantages of our SQ3000 Multi-Function system has allowed us to attain a leading position in the high growth micro LED inspection and metrology market. Sales of SQ3000 Multi-Function systems for micro LED inspection and metrology applications totaled $4.6 million in 2020, compared to $2.2 million in 2019 and $348,000 in 2018. Given these market dynamics and because of the competitive advantages of our 3D MRS sensor technology, we anticipate sales of SQ3000 Multi-Function systems will represent an increasing percentage of our total inspection and metrology system sales in the future.


In the fourth quarter of 2020, we received new purchase orders for our 3D MX3000 memory module inspection systems valued at $4.2 million. We expect to recognize the revenue from these orders in the second and third quarters of 2021. We believe memory manufacturers have determined that post singulation automated optical inspection of memory modules is an important step in their manufacturing process to improve yields and product quality. Two of the world’s three largest memory manufacturers now use either our 2D MX600 or 3D MX3000 memory module inspection systems. As a result, we believe the potential market opportunity for our 2D and 3D memory module inspection systems is significant and anticipate that sales of these systems will continue in the future.  


Revenues from sales of semiconductor sensors, principally our WaferSense line of products, increased by $1.1 million or 8% to $15.0 million in 2020, from $14.0 million in 2019, and increased by $365,000 or 3% to $14.0 million in 2019, from $13.6 million in 2018. The revenue increases were due to growing acceptance of our WaferSense products as important productivity enhancements tools by semiconductor manufacturers, and improved account penetration at major semiconductor manufacturers and capital equipment suppliers. Over the longer-term, we anticipate that the benefits from growing market awareness of our WaferSense products, improved account penetration at major semiconductor manufacturers and capital equipment suppliers and new product introductions will lead to additional WaferSense product sales. 


Export revenues totaled $56.0 million or 80% of our revenues in 2020, compared to $44.8 million or 76% of total revenues in 2019, and $46.4 million or 72% of total revenues in 2018. Export revenues as a percentage of total revenues increased in 2020 and 2019 due to higher sales of 3D MRS sensors, SQ3000 Multi-Function systems and MX memory module inspection systems. A higher proportion of these products are generally sold outside the United States as compared to our other products. In addition, the Covid-19 pandemic has had a more negative impact on sales in the U.S., when compared to the effect on sales in Europe and Asia.

 

Cost of Revenues and Gross Margin

 

Cost of revenues increased by $5.9 million or 18% to $38.9 million in 2020, and decreased by $3.1 million or 9% to $33.0 million in 2019, from $36.1 million in 2018. Fluctuations in cost of revenues in 2020 and 2019 were primarily due to the corresponding fluctuations in revenue levels. Total revenues increased by 18% in 2020 and decreased by 8% in 2019. Items included in cost of revenues that fluctuate with the level of sales include raw materials, direct labor and factory overhead costs. Revenue mix also contributed to the changes in cost of revenues. 

 

Total gross margin as a percentage of revenue was 45% in 2020, 44% in 2019, and 44% in 2018. There was no significant change in our total gross margin as a percentage of revenue in 2020, when compared to 2019 or 2018. 


Our markets are highly price competitive, particularly in the electronics assembly and SMT markets. As a result, we have experienced continual pressure on our gross margins. We compensate for the pressure to reduce the price of our products by introducing new products with more features and improved performance and through manufacturing cost reduction programs. Sales of many products that we have recently introduced or are about to introduce, including our current and future SQ3000 Multi-Function systems, WX3000 system for semiconductor wafer and advanced packaging inspection and metrology, next generation 3D MRS sensors and semiconductor sensors, (consisting primarily of our WaferSense line of products) have, or are expected to have, more favorable gross margins than many of our existing products. Our next generation 3D MRS sensor and system products are being designed for more complex and demanding inspection and metrology applications in the SMT and semiconductor markets. Sales prices and gross profit margins for these applications tend to be higher than margins for products sold in the general purpose SMT market. However, the gross margin percentage for our 3D MX3000 system for inspection of memory modules will be lower than our current total gross margin percentage due to the significant costs for material handling and automation required for this product. We are working on cost reduction strategies for our SQ3000 Multi-Function system which should benefit gross margins for this product starting in the third quarter of 2021.


24


Operating Expenses

 

Research and development (R&D) expenses were $9.6 million or 14% of revenues in 2020, $9.4 million or 16% of revenues in 2019, and $8.8 million or 14% of revenues in 2018. The increase in R&D expenses in 2020 was due to higher compensation costs for new and existing R&D employees, including higher bonus accruals resulting from our improved financial performance. These cost increases were mostly offset by the $340,000 favorable impact from the Singapore Government's jobs support program on wage costs discussed above. Travel costs were also lower due to the Covid-19 pandemic. The increase in R&D expenses in 2019 was the result of higher compensation costs for new and existing R&D employees, and expenses related to development of our next generation 3D NanoResolution MRS sensor, offset in part by lower bonus accruals for employees working in our R&D department. Current R&D expenditures are primarily focused on continued development of our portfolio of next generation 3D MRS sensor and system products and continued R&D work on WaferSense products. We also continue to enhance our SQ3000 Multi-Function systems and 3D MX3000 memory module inspection systems.


Selling, general and administrative ("S,G&A") expenses were $15.6 million or 22% of revenues in 2020, $16.0 million or 27% of revenues in 2019, and $16.4 million or 25% of revenues in 2018. The decrease in S,G&A expenses as a percentage of revenues in 2020 was mainly due to higher revenue levels. The decrease in S,G&A expenses in 2020 was due to lower costs for travel and trade shows resulting from the Covid-19 pandemic, lower costs for professional fees and a $70,000 benefit from the Singapore Government's jobs support program, offset in part by higher compensation costs, including higher bonus accruals due to our improved financial performance. The increase in S,G&A expenses as a percentage of revenues in 2019 primarily reflected our lower revenue levels, offset in part by lower expense levels. The decrease in S,G&A expenses in 2019 was due to lower compensation costs resulting from employee departures and lower bonus accruals and sales commissions resulting from the declines in our revenues and financial performance. 


We anticipate that operating expenses will increase in 2021 when compared to 2020. We expect travel and trade show costs to increase once the Covid-19 pandemic begins to ease. We also expect that any impact from the Singapore Government's jobs support program on 2021 operating costs will be inconsequential.


Interest Income and Other

 

Interest income and other includes interest earned on investments and gains and losses associated with foreign currency transactions, primarily intercompany financing transactions associated with our subsidiaries in the United Kingdom, Singapore, China and Taiwan. We recognized foreign currency transaction gains of $27,000 in 2020, compared to foreign currency transaction losses of $127,000 in 2019.


Provision for Income Taxes

 

We recorded income tax expense of $612,000 in 2020, compared to income tax expense of $386,000 in 2019. Our income tax expense in 2020 reflected an effective income tax rate of approximately 10%, which was favorably impacted by significant excess tax benefits from employee stock option exercises and vesting of restricted stock units and restricted shares, and favorable benefits from U.S. federal R&D tax credits and foreign tax credits. We were able to take advantage of the Foreign Derived Intangible Income deduction and foreign tax credits in 2020 because we have used up our remaining federal net operating loss carry forwards. Our income tax expense in 2019 reflected an effective tax rate of approximately 33%, which was negatively impacted by Global Intangible Low-Taxed Income (GILTI) income and an increase in our valuation allowance for deferred income taxes, offset by the favorable benefits from U.S. federal R&D tax credits and a non-cash benefit from completion of an audit of our income taxes in the Singapore tax jurisdiction.    


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

 

Significant judgment is required in determining the realizability of our deferred tax assets. The assessment of whether valuation allowances are required considers, among other matters, the nature, frequency and severity of any current and cumulative losses, forecasts of future profitability, the duration of statutory carry forward periods, our experience with credit and loss carry forwards not expiring unused and tax planning alternatives. In analyzing the need for valuation allowances, we first considered our history of cumulative operating results for income tax purposes over the past three years in each of the tax jurisdictions in which we operate, our financial performance in recent quarters, statutory carry forward periods and tax planning alternatives. In addition, we considered both our near-term and long-term financial outlook. After considering all available evidence (both positive and negative), we concluded that recognition of valuation allowances for substantially all of our U.S. and Singapore based deferred tax assets was not required at December 31, 2020 or December 31, 2019. The valuation allowance recorded against our deferred tax assets at December 31, 2020 was reduced by $265,000, mainly for U.S. federal R&D tax credits that were used or expired. 


25


We file income tax returns in the United States and various state and foreign jurisdictions. Our federal income tax returns for years after 2016 are still subject to examination by the Internal Revenue Service. We are no longer subject to state and local income tax examinations for years prior to 2016. The Inland Revenue Authority of Singapore has initiated a routine compliance review of our 2018 income tax return. We presently anticipate that the outcome of this audit will not have a significant impact on our financial position or results of operations. 


Liquidity and Capital Resources 

 

Our cash and cash equivalents increased by $2.6 million in 2020. Cash provided by operating activities of $6.0 million and proceeds of $11.6 million from maturities of marketable securities were more than offset by purchases of marketable securities totaling $13.2 million and purchases of fixed assets and payment of capitalized patent costs totaling $1.7 million. Proceeds from stock option exercises and share purchases under our Employee Stock Purchase Plan totaling $582,000, were more than offset by $605,000 of cash used to make employee withholding tax payments for shares withheld related to stock option exercises and vesting of restricted stock units. Our cash and cash equivalents fluctuate in part because of sales and maturities of marketable securities and investment of cash balances in marketable securities, and from other sources of cash. Accordingly, we believe the combined balances of cash and marketable securities provide a more reliable indication of our available liquidity than cash balances alone. Combined balances of cash and marketable securities increased by $4.3 million to $30.6 million as of December 31, 2020, from $26.3 million as of December 31, 2019.


Operating activities provided $6.0 million of cash in 2020. The amount of cash provided by operations was favorably impacted by our net income of $5.7 million. Net income was affected by non-cash expenses totaling $4.6 million for depreciation and amortization, non-cash operating lease expense, provision for doubtful accounts, deferred taxes, non-cash gains from foreign currency transactions, share-based compensation costs and an unrealized loss on our available-for-sale equity security. Changes in operating assets and liabilities providing cash included a decrease in accounts and trade notes receivable of $1.9 million, an increase in accrued expenses of $1.3 million and an increase in advance customer payments of $247,000. Changes in operating assets and liabilities using cash included an increase in inventories of $5.2 million, a decrease in accounts payable of $1.9 million and a decrease in operating lease liabilities of $772,000. Accounts and trade notes receivable decreased due to an improvement in the rate of collections. Sales of sensor products, which typically have shorter collection cycles than sales of our inspection and metrology system products, were higher in the fourth quarter of 2020, when compared to the fourth quarter of 2019. The increase in accrued expenses was mainly due to bonus accruals resulting from our improved financial performance. Advance customer payments were up due to an increase in deposits for equipment prior to transfer of control. The increase in inventories was due to planned purchases of raw materials in the third quarter of 2020 to meet anticipated customer demand for SQ3000 Multi-Function systems. The decrease in accounts payable was due to the timing of raw material purchases, with lower purchases of raw materials in the fourth quarter of 2020, when compared to the fourth quarter of 2019. Operating lease liabilities decreased due to monthly rental payments under our facility leases.

 

Operating activities provided $2.1 million of cash in 2019. The amount of cash provided by operations was favorably impacted by our net income of $774,000. Net income was affected by non-cash expenses totaling $5.2 million for depreciation and amortization, non-cash operating lease expense, provision for doubtful accounts, deferred taxes, non-cash losses from foreign currency transactions, share-based compensation costs, and various non-cash gains and losses. Changes in operating assets and liabilities providing cash included a decrease in prepaid expenses and other assets of $539,000. Changes in operating assets and liabilities using cash included an increase in accounts and trade notes receivable of $1.2 million, an increase in inventories of $439,000, a decrease in accounts payable of $1.5 million, a decrease in accrued expenses of $856,000 and a decrease in operating lease liabilities of $308,000. Prepaid expenses and other assets mainly decreased because deposits previously paid to a key supplier of materials were used to purchase inventories. Accounts and trade notes receivable increased due to slower collection of accounts receivable. Sales of inspection and metrology systems, which typically have longer collection periods than sales of our sensor products, were higher in the later half of 2019, when compared to the later half of 2018. The increase in inventories was due to the purchase of materials to support the launch of new products, including our ultra-high resolution 3D NanoResolution MRS sensor and 3D MX3000 AOI system for inspection of memory modules. Accounts payable decreased due to the timing of inventory purchases, with excess raw material purchases from the first half of 2019 being consumed in the later half of 2019, resulting in fewer raw material purchases in the fourth quarter of 2019, when compared to the fourth quarter of 2018. Accrued expenses decreased due to lower compensation accruals, resulting from payment of 2018 bonuses in early 2019, and lower bonuses for 2019. Operating lease liabilities decreased due to monthly rental payments under our facility leases.


Investing activities used $3.3 million of cash in 2020 and $5.6 million of cash in 2019. Changes in the level of investment in marketable securities, resulting from the purchases, sales and maturities of those securities used $1.6 million of cash in 2020 and $4.2 million of cash in 2019. We used $1.7 million of cash in 2020 and $1.5 million of cash in 2019 for the purchase of fixed assets and capitalized patent costs. Proceeds of $84,000 were received in 2019 from the sale of equipment.

 

Financing activities used $23,000 of cash in 2020 and provided $31,000 of cash in 2019. Proceeds from the exercise of stock options and share purchases under our employee stock purchase plan provided $582,000 of cash in 2020 and $451,000 of cash in 2019. Tax payments for shares withheld related to stock option exercises and vesting of restricted stock units used $605,000 of cash in 2020 and $67,000 of cash in 2019. In July 2019, our Board of Directors authorized a $3.0 million share repurchase program which expired on June 30, 2020. No shares were repurchased under this program in 2020 prior to its expiration. Share repurchases under this program used $353,000 of cash in 2019. 

 

26


At December 31, 2020, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities. These entities are established by some companies for the purpose of establishing off-balance sheet arrangements or for other contractually narrow or limited purposes.


In February 2020, we finalized a new lease for our existing 19,805 square foot mixed office and warehouse facility in Singapore, which serves as a sales, development and final assembly and integration facility for our inspection and metrology system products. The new lease does not contain any incentives or renewal options and runs through July 24, 2023. Rent and facility operating costs under the new lease are expected to remain unchanged when compared to the old lease that expired in July 2020.


Except for obligations under facility leases and purchase contracts, we had no material commitments for expenditures as of December 31, 2020. Purchase commitments for raw materials and other inventory can vary based on the volume of revenue and resulting inventory requirements.


Our cash, cash equivalents and marketable securities totaled $30.6 million at December 31, 2020. We believe that on-hand cash, cash equivalents and marketable securities, coupled with anticipated future cash flow from operations, will be adequate to fund our cash flow needs for the foreseeable future, including the contractual obligations mentioned above.

 

Inflation and Foreign Currency Transactions

 

Changes in our revenues have resulted primarily because of changes in the level of unit shipments due to competitive factors and the relative strength or weakness of the worldwide SMT and semiconductor capital equipment markets. We believe that inflation has not had a significant effect on our operations.

 

Most of our international export sales are negotiated, invoiced and paid in U.S. dollars. We manufacture our inspection and metrology system products in Singapore and a portion of our raw material purchases are denominated in Singapore dollars. We also have R&D and sales personnel located in Singapore and sales offices located in other parts of the world. Although currency fluctuations do not significantly affect our revenue, they can impact our costs and influence the price competitiveness of our products and the willingness of existing and potential customers to purchase our products.

 

Critical Accounting Policies and Estimates


Our discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements 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. On an on-going basis, we evaluate these estimates, including estimates related to revenue recognition, bad debts, warranty obligations, inventory valuation, intangible assets, and income taxes. We base these estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. The estimates and judgments that we believe have the most effect on our reported financial position and results of operations are as follows: 

 

Revenue Recognition.

 

Revenue is measured based on the consideration specified in a contract with a customer. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for purposes of revenue recognition. Revenue from all customers, including distributors, is recognized when a performance obligation is satisfied by transferring control of a product or service to a customer. Amounts billed to customers for shipping and handling are included in revenue. Taxes collected from customers and remitted to governmental authorities are excluded from revenue on the net basis of accounting. Accounts receivable are due under normal trade terms, generally 120 days or less.

 

Sales involving multiple performance obligations typically include the sale of an inspection or metrology systems product, installation and training, and in some cases, an extended warranty. When a sale involves multiple performance obligations, we account for individual products and services separately if the customer can benefit from the product or service on its own or with other resources that are readily available to the customer and the product or service are separately identifiable from other promises in the arrangement. The consideration is allocated between separate performance obligations in proportion to their estimated stand-alone selling price. If the stand-alone selling price is not directly observable, we use the cost plus margin approach to estimate stand-alone selling price. Costs related to products delivered are recognized in the period revenue is recognized, including product warranties for periods ranging from 1 to 3 years.


27


Our performance obligations are satisfied at a point in time or over time as work progresses. Revenue from products and services transferred to customers at a point in time totaled $68.4 million, or 98% of our total revenue in 2020, and $57.2 million, or 97% of our total revenue in 2019. Revenue from these contracts is recognized when obligations under the terms of the contract with our customers are satisfied, which is generally with the transfer of control upon shipment. Sales of some products may require customer acceptance due to performance or other acceptance criteria that is considered more than a formality. For these product sales, revenue is recognized upon notification of customer acceptance.


Revenue from products and services transferred to customers over time totaled $1.7 million, or 2% of our total revenue in 2020, and $2.0 million, or 3% of our total revenue in 2019. Periodically, sensor product arrangements with our OEMs will create an asset with no alternative use and include an enforceable right to payment. For these arrangements, control is transferred over the manufacturing process; therefore, revenue is recognized over time utilizing an input method based on actual costs incurred in the manufacturing process to date relative to total expected production costs. For certain longer duration 3D scanning service projects, we progress bill as the services are performed. These arrangements create an asset with no alternative use and include an enforceable right to payment. For these arrangements, control is transferred over the hours incurred to complete the scanning project; therefore, revenue is recognized over time utilizing an input method based on actual hours incurred relative to total projected project hours. For maintenance and extended warranty contracts, revenue is recognized over time on a straight-line basis over the term of the contract as the customer simultaneously receives and consumes the benefits of the coverage.

 

 Allowance for Doubtful Accounts and Trade Notes.

 

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. In making the determination of the appropriate allowance for doubtful accounts, we consider specific accounts, historical write-offs, changes in customer relationships and credit worthiness and concentrations of credit risk. Specific accounts and trade notes receivable are written-off once a determination is made that the account is uncollectible. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The allowance for doubtful accounts and trade notes was $302,000 at December 31, 2020 and $322,000 at December 31, 2019.

 

Allowance for Warranty Expenses.

 

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 components provided by suppliers, warranty obligations do arise. These obligations are affected by product failure rates, the costs of materials used and service delivery expenses incurred in correcting a product failure. If actual product failure rates and material or service delivery costs differ from our estimates, revisions to the estimated warranty liability are required and could be material. The allowance for warranties was $839,000 at December 31, 2020 and $798,000 at December 31, 2019.

 

Inventory Write Downs.

 

We write down inventory for estimated obsolescence or lack of marketability equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. We formulate our assumptions regarding future demand and market conditions based on order trends and input from customers regarding their future requirements. If actual market conditions are less favorable than those projected, or if in the future we decide to discontinue sales and marketing of any of our products, additional inventory write-downs may be required. Excess and obsolete inventories were written down by $752,000 at December 31, 2020 and $649,000 at December 31, 2019.

 

Valuation of Intangible and Long-Lived Assets. 

 

We evaluate the carrying value of goodwill annually on December 31, and more frequently if management believes indicators of impairment exist. We assess the impairment of identifiable intangible assets, long lived assets and related goodwill whenever events or changes in circumstances indicate the carrying value may not be recoverable. Factors we consider important, which could trigger an impairment review and that we consider when performing our annual goodwill impairment assessment, include the following:

  


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 the price of our common stock 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 undiscounted cash flows from such asset. 


 

When we determine that the carrying value of intangibles, long-lived assets and related goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure any potential impairment based on a projected discounted cash flow method using a discount rate that we believe is commensurate with the risk inherent in our current business model. We utilize the income approach to estimate our fair value. The income approach is a valuation technique under which we estimate future cash flows using financial forecasts. Future estimated cash flows are discounted to their present value to calculate fair value. When determining fair value, we also give consideration to the control premium in excess of our current market capitalization that might be obtained from a third party acquirer. These assumptions require significant judgment and actual results may differ from assumed or estimated amounts.

 

At December 31, 2020, we had goodwill of $1.4 million. Our recent analysis performed as of December 31, 2020 indicates that our goodwill is not impaired. However, our conclusion could change in the future, if our assumptions about future economic conditions, revenue growth or profitability change. Any resulting impairment charge could have a material effect on our financial position and results of operations in the future.

 

Income Taxes.

 

Significant judgment is required in determining worldwide income tax expense based upon tax laws in the various jurisdictions in which we operate. We have established reserves for uncertain tax positions by applying the “more likely than not” threshold (i.e., a likelihood of occurrence greater than fifty percent). The recognition threshold is met when an entity concludes that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination by the relevant taxing authority. Those tax positions failing to qualify for initial recognition are recognized in the first interim period in which they meet the more likely than not standard, or are resolved through negotiation or litigation with the taxing authority, or upon expiration of the statute of limitations. De-recognition of a tax position that was previously recognized occurs when an entity subsequently determines that a tax position no longer meets the more likely than not threshold of being sustained. All tax positions are analyzed periodically and adjustments are made as events warrant modification, such as the completion of audits or the expiration of statutes of limitations, which may result in future charges or credits to income tax expense.

 

As part of the process of preparing our consolidated financial statements, management is required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating the current tax liability, as well as assessing temporary differences arising from the different treatment of items for financial statement and tax purposes. These differences result in deferred tax assets and liabilities, which are recorded on our consolidated balance sheet.


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

 

Significant judgment is required in determining the realizability of our deferred tax assets. The assessment of whether valuation allowances are required considers, among other matters, the nature, frequency and severity of any current and cumulative losses, forecasts of future profitability, the duration of statutory carry forward periods, our experience with credit and loss carry forwards not expiring unused and tax planning alternatives. In analyzing the need for valuation allowances, we first considered our history of cumulative operating results for income tax purposes over the past three years in each of the tax jurisdictions in which we operate, our financial performance in recent quarters, statutory carry forward periods and tax planning alternatives. In addition, we considered both our near-term and long-term financial outlook. After considering all available evidence (both positive and negative), we concluded that recognition of valuation allowances for substantially all of our U.S. and Singapore based deferred tax assets was not required at December 31, 2020 or December 31, 2019. The valuation allowance recorded against our deferred tax assets at December 31, 2020 was reduced by $265,000, mainly for U.S. federal R&D tax credits that were used or expired. 

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Not applicable

  

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

CONSOLIDATED BALANCE SHEETS 

CYBEROPTICS CORPORATION

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

December 31,

(In thousands, except share information)

 

2020

 

2019

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,399

 

 

$

5,836

 

Marketable securities

 

8,121

 

 

8,295

 

Accounts receivable, less allowance for doubtful accounts of $302 at December 31, 2020 and $322 at December 31, 2019

 

14,735

 

 

16,059

Inventories

 

20,271

 

 

15,580

 

Prepaid expenses
686

559

Other current assets

 

890

 

 

1,020

 

Total current assets

 

53,102

 

 

47,349

 

 

 

 

 

 

Marketable securities, long-term

 

14,052

 

 

12,168

 

Equipment and leasehold improvements, net

 

3,235

 

 

3,341

 

Intangibles, net

 

325

 

 

310

 

Goodwill

 

1,366

 

 

1,366

 

Right-of-use assets (operating leases)
2,621

2,111
Trade notes receivable, long-term
418

962

Deferred tax assets

 

4,597

 

 

4,992

 

Total assets

 

$

79,716

 

 

$

72,599

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Accounts payable

 

$

5,118

 

 

$

7,023

 

Advance customer payments

 

823

 

 

499

 

Accrued expenses

 

3,893

 

 

2,572

 

Current operating lease liabilities
819

688

Total current liabilities

 

10,653

 

 

10,782

 

 

 

 

 

 

Other liabilities

 

134

 

 

202

 

Long-term operating lease liabilities
3,244

3,141

Reserve for income taxes

 

157

 

 

150

 

Total liabilities

 

14,188

 

 

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, 7,294,617 shares issued and outstanding at December 31, 2020 and 7,154,591 shares issued and outstanding at December 31, 2019

 

37,817

 

 

36,659

 

Accumulated other comprehensive loss

 

(1,102

)

 

(1,406

)

Retained earnings

 

28,813

 

 

23,071

 

Total stockholders’ equity

 

65,528

 

 

58,324

 

Total liabilities and stockholders’ equity

 

$

79,716

 

 

$

72,599

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS

CYBEROPTICS CORPORATION 

 

 



 

 

 

 

 

 

 

Year Ended December 31,

(In thousands, except per share amounts)

 

2020

 

2019

Revenues

 

$

70,117

 

 

$

59,263

 

Cost of revenues

 


38,900

 

 

32,961

 

 

 


 

 

 

 

Gross margin

 

 

31,217

 

 

26,302

 








Research and development expenses

 


9,572

 

 

9,362

 

Selling, general and administrative expenses

 


15,648

 

 

16,004

 









Income from operations

 


5,997

 

 

936

 

 

 


 

 

 

 

Interest income and other, net


357

224

 

 


 

 

 

 

Income before income taxes

 


6,354

 

 

1,160

 

 

 


 

 

 

 

Income tax provision

 


612

 

 

386

 

 


 

 

 

 

Net income 

 

$

5,742

 

 

$

774

 

 


 

 

 

 

Net income per share – Basic

 

$

0.80

 

 

$

0.11

 

Net income per share – Diluted

 

$

0.77

 

 

$

0.11

 

 

 



 

 

 

Weighted average shares outstanding – Basic

 


7,215

 

 

7,113

 

Weighted average shares outstanding – Diluted

 


7,454

 

 

7,262

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 

CYBEROPTICS CORPORATION

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31,

(In thousands)

 

2020

 

2019

Net income

 

5,742

 

 

$

774

 

 

 

 

 

 

 

 

Other comprehensive income, before tax:

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

190

 

174

 

 

 

 

 

 

 

Unrealized gains on available-for-sale securities

 

 

145

 

138


 

 

 

 

 

 

 

Total other comprehensive income before income taxes

 

 

335

 

312









Income tax provision

 

 

31

 

28









Total other comprehensive income after income taxes

 

 

304

 

284









Total comprehensive income

 

6,046

 

 

$

1,058

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

CYBEROPTICS CORPORATION 

 

 

Year Ended December 31,

(In thousands)

 

2020


2019

CASH FLOWS FROM OPERATING ACTIVITIES:

 


 


 

 

Net income

 

$

5,742


 

$

774

 

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

 


 


 

 

Depreciation and amortization

 


2,629


 

2,832

 

Non-cash operating lease expense

521

828

(Recovery) provision for doubtful accounts

 


(20

)

 

8

Deferred taxes

 


366

 

393


Foreign currency transaction (gains) losses

 


(97

)


127

Share-based compensation

 


1,181

 

 

991

  

Unrealized loss on available for sale equity security

18

12
Gain on sale of equipment


(26)

Changes in operating assets and liabilities:

 


 

 

 

 

Accounts and trade notes receivable

 


1,888

 

(1,170

)

Inventories

 


(5,212

)

 

(439

)

Prepaid expenses and other assets

 


49

 

539

Accounts payable

 


(1,903

)

 

(1,529)

Advance customer payments and other

 


247

 

(49)

Accrued expenses

 


1,321

 

(856)

Operating lease liabilities

(772 )
(308)

Net cash provided by operating activities

 


5,958

 

 

2,127

 

 


 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 


 

 

 

 

Proceeds from maturities of available-for-sale marketable securities

 


11,576

 

 

7,835

 

Purchases of available-for-sale marketable securities

 


(13,186

)

 

(12,033

)

Proceeds from sale of equipment



84

Additions to equipment and leasehold improvements

 


(1,527

)

 

(1,301

)

Additions to patents

 


(212

)

 

(150

)

Net cash used in investing activities

 


(3,349

)

 

(5,565

)

 

 


 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 


 

 

 

 

Proceeds from exercise of stock options

 


358

 

 

248

 

Tax payments related to shares withheld for share-based compensation plans

 

(605

)

 

(67

Common stock repurchases

 

 

 

(353

)

Proceeds from issuance of common stock under employee stock purchase plan

 


224

 

 

203

 

Net cash (used in) provided by financing activities

 


(23

)

 

31

 

 

 


 

 

 

 

Effects of exchange rate changes on cash and cash equivalents

 


(23

)

 

(5

)

 

 


 

 

 

 

Net increase (decrease) in cash and cash equivalents

 


2,563

 

(3,412

)

 

 


 

 

 

 

Cash and cash equivalents – beginning of period

 


5,836

 

 

9,248

 

Cash and cash equivalents – end of period

 

$

8,399

 

 

$

5,836

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.

 


CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CYBEROPTICS CORPORATION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 


















Adoption of ASU 2016-02

 

 

 

 

 

 

 

33

 

 

33

 


















Exercise of stock options and vesting of restricted stock units, net of shares exchanged as payment

 


58

 

 

248

 

 

 

 

 

 

248

 


















Tax payments related to shares withheld for share-based compensation plans

 

 

(4

)

 

(67

)

 

 

 

 

 

(67

)

















Share issuances for director compensation

 


8

 

 

 

 

 

 

 

 

 


















Share-based compensation

 


 

 

991

 

 

 

 

 

 

991

 


















Issuance of common stock under Employee Stock Purchase Plan

 


18

 

 

203

 

 

 

 

 

 

203

 


















Repurchase of common stock

(26 )
(353 )




(353 )

















Other comprehensive income, net of tax

 


 

 

 

 

284

 

 

 

284


















Net income

 


 

 

 

 

 

 

774

 

 

774

 






















BALANCE, December 31, 2019

 


7,155

 

 


36,659

 

 


(1,406

)

 


23,071

 

 


58,324

 


















Exercise of stock options and vesting of restricted stock units, net of shares exchanged as payment

 


135

 

 

358

 

 

 

 

 

 

358

 


















Tax payments related to shares withheld for share-based compensation plans

 

 

(23

)

 

(605

)

 

 

 

 

 

(605

)

















Share issuances for director compensation 

 


8

 


 

 

 

 

 

 


 


















Share-based compensation

 


 

 

1,181