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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 


FORM 10-Q

 

 

 

 

(Check One)

 

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

OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended March 31, 2021

 

 

  

o TRANSITION PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT


 

 

For the transition period from ______ to ______

 

 

 


COMMISSION FILE NO. (0-16577)

 

 

 

CYBEROPTICS CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

 

Minnesota

 

41-1472057

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

5900 Golden Hills Drive

 

 

MINNEAPOLIS, MINNESOTA

 

55416

(Address of principal executive offices)

 

(Zip Code)

 


(763) 542-5000

 

(Registrant’s telephone number, including area code)


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

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

 

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

 

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

 

 Large Accelerated Filer

 

Accelerated Filer

 Non-Accelerated Filer

  Smaller Reporting Company

 

 

  Emerging Growth Company

 

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

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. At April 30, 2021, there were 7,299,376 shares of the registrant’s Common Stock, no par value, issued and outstanding.

1


PART I. FINANCIAL INFORMATION


ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

CYBEROPTICS CORPORATION 

(Unaudited)

   

 

 

 

 

 

 

 

 

(In thousands, except share information)

 

March 31,
2021

 

December 31,
2020

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,031

 

 

$

8,399

 

Marketable securities

 

8,680

 

 

8,121

 

Accounts receivable, less allowances of $332 at March 31, 2021 and $302 at December 31, 2020

 

15,914

 

 

14,735

 

Inventories

 

20,662

 

 

20,271

 

Prepaid expenses
901

686

Other current assets

 

754

 

 

890

 

Total current assets

 

56,942

 

 

53,102

 




Marketable securities, long-term 

 

13,587

 

 

14,052

 

Equipment and leasehold improvements, net

 

3,446

 

 

3,235

 

Intangible assets, net

 

303

 

 

325

 

Goodwill

 

1,366

 

 

1,366

 

Right-of-use assets (operating leases)
2,469

2,621


Trade notes receivable, long-term
333

418

Deferred tax assets

 

4,488

 

 

4,597

 

Total assets

 

$

82,934



$

79,716

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Accounts payable

 

$

7,784

 

 

$

5,118

 

Advance customer payments

 

687

 

 

823

 

Accrued expenses

 

3,103

 

 

3,893

 

Current operating lease liabilities
827

819

Total current liabilities

 

12,401

 

 

10,653

 

 

Other liabilities

 

143

 

 

134

 

Long-term operating lease liabilities
3,025

3,244

Reserve for income taxes

 

209

 

 

157

 

Total liabilities

 

15,778

 

 

14,188

 

 

 

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, 7,299,376 shares issued and outstanding at March 31, 2021 and 7,294,617 shares issued and outstanding at December 31, 2020

 

38,208

 

 

37,817

 

Accumulated other comprehensive loss

 

(1,306

)

 

(1,102

)

Retained earnings

 

30,254

 

 

28,813

 

Total stockholders’ equity

 

67,156

 

 

65,528

 

Total liabilities and stockholders’ equity

 

$

82,934

 

 

$

79,716

 

 

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

 

2


 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME

CYBEROPTICS CORPORATION

(Unaudited)

 









 


Three Months Ended March 31,

(In thousands, except per share amounts)


2021
2020

Revenues


$ 17,732

$ 16,429

Cost of revenues



9,353


9,146

 









Gross margin



8,379


7,283

 









Research and development expenses



2,761


2,395

Selling, general and administrative expenses



3,888



4,159

 









Income from operations



1,730

729

 









Interest income and other



22

264

 









Income before income taxes



1,752

993

 









Income tax expense



311

149

 









Net income


$ 1,441
$ 844

 









Net income per share – Basic


$ 0.20
$ 0.12

Net income per share – Diluted


$ 0.19

$ 0.11

 









Weighted average shares outstanding – Basic



7,293


7,157

Weighted average shares outstanding – Diluted



7,463



7,367

 

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

 

3


 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 

CYBEROPTICS CORPORATION  

(Unaudited)










 


Three Months Ended March 31,

(In thousands)


2021
2020

Net income


$ 1,441
$ 844

 









Other comprehensive loss before income taxes:









Foreign currency translation adjustments

(147 )

(600 )

 









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



(72 )

140

 









Total other comprehensive loss before income taxes 



(219 )

(460 )









Income tax provision



15

(30 )









Total other comprehensive loss after income taxes



(204 )

(490 )









Total comprehensive income 


$ 1,237
$ 354

 

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

 

4


 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

CYBEROPTICS CORPORATION

(Unaudited) 

 

 

 

 



 

 

 

 

 

Three Months Ended March 31,

(In thousands)

 

2021



2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:


 



 

 

Net income

 

$

1,441



$

844


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

 

 



 

 

Depreciation and amortization

 

634



664

 

Non-cash operating lease expense
152

137

Provision (recovery) for doubtful accounts

 

30


(23

)

Deferred taxes

 

122


64

Foreign currency transaction losses (gains)

 

6


(381

)

Share-based compensation

 

334



272

 

Unrealized (gain) loss on available-for-sale equity security

 

(17

)

18

 

Changes in operating assets and liabilities:

 

 



 

 

Accounts and trade notes receivable

 

(1,124

)

1,841


Inventories

 

(721

)

(2,086

)

Prepaid expenses and other assets

 

(73

)

(111

)

Accounts payable

 

2,703


1,348

Advance customer payments and other

 

(120

)

51

Accrued expenses

 

(738

)

14


Operating leases
(211 )
(200 )

Net cash provided by operating activities 

 

2,418



2,452


 


 



 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:


 



 

 

Proceeds from maturities of available-for-sale marketable securities 


2,597



3,106

 

Purchases of available-for-sale marketable securities


(2,767

)

(5,294

)

Additions to equipment and leasehold improvements


(650

)

(129

)

Additions to patents


(34

)

(17

)

Net cash used in investing activities


(854

)

(2,334

)

 

 

 



 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:


 



 

 

Proceeds from exercise of stock options


57



85

 

Net cash provided by financing activities


57


85

 

 

 

 



 

 

 

Effects of exchange rate changes on cash and cash equivalents


11


30

 


 



 

 

 

Net increase in cash and cash equivalents


1,632


233

 


 



 

 

 

Cash and cash equivalents – beginning of period


8,399



5,836

 

Cash and cash equivalents – end of period


$

10,031



$

6,069

 

 

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

 

5


 

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CYBEROPTICS CORPORATION



1. INTERIM REPORTING:


The interim condensed consolidated financial statements of CyberOptics Corporation and its wholly-owned subsidiaries ("we", "us" or "our") presented herein as of March 31, 2021, and for the three month periods ended March 31, 2021 and 2020, are unaudited but, in the opinion of management, include all adjustments, consisting of normal recurring adjustments necessary, for a fair presentation of financial position, results of operations and cash flows for the periods presented.


The results of operations for the three month period ended March 31, 2021 do not necessarily indicate the results to be expected for the full year. The December 31, 2020 consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America ("U.S. GAAP"). The unaudited interim condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2020.


2. COVID-19 PANDEMIC:


Effect of Covid-19 Outbreak on Business Operations


A novel strain of coronavirus ("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. The Covid-19 outbreak has not had a significant impact on our business to date. However, the following factors have affected and may continue to affect our business:

 

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

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

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


Although we cannot estimate the length or gravity of the impact of the Covid-19 outbreak at this time, if the pandemic continues as expected for the foreseeable future, it may have an adverse effect on our results of future operations, financial position and liquidity in the remainder of 2021 and beyond. 


6



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 in the United States. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods and alternative tax credit refunds. The CARES Act also appropriated funds for the Small Business Administration Paycheck Protection Program loans that are forgivable in certain circumstances to promote continued employment. Additional relief packages were passed in December 2020 and March 2021. We have analyzed these 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 these pieces of legislation could have on our business in the future.


Singapore Jobs Support Program


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 expenses by $19,000 in the three months ended March 31, 2020. We did not receive any benefit from the Singapore jobs support program in the three months ended March 31, 2021, nor do we expect any benefit during the remainder of 2021.


3. RECENT ACCOUNTING DEVELOPMENTS: 


In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which revises guidance for the accounting for credit losses on financial instruments within its scope, and in November 2018, issued ASU No. 2018-19, which amended the standard. The new standard introduces an approach to estimating credit losses that is based on expected losses (referred to as the current expected credit losses model), and applies to most financial assets measured at amortized cost and certain other instruments, including available-for-sale marketable debt securities, trade and other receivables. The new standard is effective for us on January 1, 2023, with early adoption permitted. We are required to apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We presently do not believe the new standard will have a material impact on our consolidated financial statements. 


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


4. REVENUE RECOGNITION:


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


The following is a summary of our revenue performance obligations:








Three Months Ended March 31, 2021
Three Months Ended March 31, 2020

(In thousands except percentages)


Revenues
Percent of Revenues

Revenues

Percent of Revenues

Revenue recognized over time


$ 403
2.3

%

$

193


1.2

%

Revenue recognized at a point in time



17,329
97.7 %

16,236

98.8

%


$ 17,732
100.0 %

$

16,429

100.0

%


See Note 11 for additional information regarding disaggregation of revenue.


Contract Balances


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

7



The following summarizes our contract assets and contract liabilities:    






(In thousands)


March 31,

2021


December 31,

2020

Contract assets, included in other current assets


$

24

 


$

 2

 

Contract liabilities - advance customer payments


$

406

 


$

567

 

Contract liabilities - deferred warranty revenue 
$ 385

$ 344


Changes in contract assets in the three months ended March 31, 2021 and the three months ended March 31, 2020 resulted from unbilled amounts under sensor product arrangements and longer duration 3D scanning service projects in which revenue is recognized over time. Changes in contract liabilities primarily resulted from reclassification of beginning contract liabilities to revenue as performance obligations were satisfied or from cash received in advance and not recognized as revenue. See Note 9 for changes in contractual obligations related to deferred warranty revenue. Unsatisfied performance obligations for deferred warranty revenue are generally expected to be recognized as revenue over the next one to three years. There were no impairment losses for contract assets in the three months ended March 31, 2021 or the three months ended March 31, 2020. 

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





Three Months Ended March 31,
(In thousands)
2021
2020

Amounts reclassified from beginning contract liabilities to revenue


$ 339

$ 76
Amounts reclassified from deferred warranty revenue

90


100
Total  $ 429 $ 176

5. MARKETABLE SECURITIES:


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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2021

(In thousands)

 

Cost

 

Unrealized
Gains

 

Unrealized
Losses

 

Fair Value

Short-Term

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

4,750

 

 

$

30

 

 

$


 

$

4,780

 

Corporate debt securities and certificates of deposit

 

3,746

 

 

24

 

 

 

3,770

 

Asset backed securities

 

130

 

 

 

 

 

130

 

Marketable securities – short-term

 

$

8,626

 

 

$

54

 

 

$

 

$

8,680

 

Long-Term

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

7,704

 

 

$

42

 

 

$

(5

)

 

$

7,741

 

Corporate debt securities and certificates of deposit

 

3,470

 

 

34

 

 

(2

)

 

3,502

 

Asset backed securities

 

2,263

 

 

34

 

 

 

2,297

 

Equity security

 

42

 

 

5

 

 

 

47

 

Marketable securities – long-term

 

$

13,479

 

 

$

115

 

 

$

(7

)

 

$

13,587

 


8







 

December 31, 2020

(In thousands)

 

Cost

 

Unrealized
Gains

 

Unrealized
Losses

 

Fair Value

Short-Term

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

4,817

 

 

$

36

 

 

$

 

$

4,853

 

Corporate debt securities and certificates of deposit

 

3,113

 

 

21

 

 

 

3,134

 

Asset backed securities

 

133

 

 

1

 

 

 

 

134

 

  Marketable securities – short-term

 

$

8,063

 

 

$

58

 

 

$

 

$

8,121

 

Long-Term

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

7,529

 

 

$

66

 

 

$

 

$

7,595

 

Corporate debt securities and certificates of deposit

 

3,975

 

 

61

 

 

(1

)

 

4,035

 

Asset backed securities

 

2,347

 

 

45

 

 

 

2,392

 

Equity security

 

42

 

 

 

 

(12

)

 

30

 

Marketable securities – long-term

 

$

13,893

 

 

$

172

 

 

$

(13

)

 

$

14,052

 


At March 31, 2021 and December 31, 2020, investments in marketable debt securities in an unrealized loss position were as follows:  

 
 
 
 

 
In Unrealized Loss Position For
Less Than 12 Months 
 
 In Unrealized Loss Position For
Greater Than 12 Months
(In thousands) 
 
Fair Value
 
Gross Unrealized
Losses
 
Fair Value
 
Gross Unrealized
Losses
March 31, 2021












   U.S. government and agency obligations

$
3,637


$
(5
)

$


$

   Corporate debt securities and certificates of deposit

1,455


(2
)




   Asset backed securities

120






      Marketable securities

$
5,212


$
(7
)

$


$

December 31, 2020
 
 

 
 

 
 

 
 

U.S. government and agency obligations
 
$
330

 
$
 
$
 
$
Corporate debt securities and certificates of deposit
 
411

 
(1
)
 
 

Marketable securities
 
$
741

 
$
(1
)
 
$
 
$


Our investments in marketable debt securities all have maturities of less than five years. Net pre-tax unrealized gains for marketable debt securities of $157,000 at March 31, 2021 and $229,000 at December 31, 2020 have been recorded as a component of accumulated other comprehensive loss in stockholders’ equity. We have determined that the net pre-tax unrealized losses for marketable debt securities at March 31, 2021 and December 31, 2020 were caused by fluctuations in interest rates and are temporary in nature. We review our marketable debt securities to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, credit quality and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. No marketable securities were sold in the three months ended March 31, 2021 or the three months ended March 31, 2020. See Note 6 for additional information regarding the fair value of our investments in marketable securities.


Investments in marketable securities classified as cash equivalents of $5.3 million at March 31, 2021 and $1.3 million at December 31, 2020, consist of corporate debt securities and certificates of deposit. There were no unrealized gains or losses associated with any of these securities at March 31, 2021 or December 31, 2020.


Cash and marketable securities held by foreign subsidiaries totaled $1.0 million at March 31, 2021 and $672,000 at December 31, 2020.


9


6. FAIR VALUE MEASUREMENTS:


We determine the fair value of our assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. We use a fair value hierarchy with three levels of inputs, of which the first two are considered observable and the last is considered unobservable, to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1). The next highest priority is based on quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in non-active markets or other observable inputs (Level 2). The lowest priority is given to unobservable inputs (Level 3). The following provides information regarding fair value measurements for our marketable securities as of March 31, 2021 and December 31, 2020 according to the three-level fair value hierarchy:




 

 

Fair Value Measurements at
March 31, 2021 Using

(In thousands)

 

Balance

March 31, 
2021

 

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

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

12,521

 

 

$

 

 

$

12,521

 

 

$

 

Corporate debt securities and certificates of deposit 

 

7,272

 

 

 

 

7,272

 

 

 

Asset backed securities

 

2,427

 

 

 

 

2,427

 

 

 

Equity security

 

47

 

 

47

 

 

 

 

 

Total marketable securities 

 

$

22,267

 

 

$

47

 

 

$

22,220

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at
December 31, 2020 Using

(In thousands)

 

Balance

December 31,

2020

 

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

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

12,448

 

 

$

 

 

$

12,448

 

 

$

 

Corporate debt securities and certificates of deposit

 

7,169

 

 

 

 

7,169

 

 

 

Asset backed securities

 

2,526

 

 

 

 

2,526

 

 

 

Equity security

 

30

 

 

30

 

 

 

 

 

Total marketable securities

 

$

22,173

 

 

$

30

 

 

$

22,143

 

 

$

 


During the three months ended March 31, 2021 and the year ended December 31, 2020, we owned no Level 3 securities and there were no transfers within the three level hierarchy. A significant transfer is recognized when the inputs used to value a security have been changed which merit a transfer between the levels of the valuation hierarchy.    


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


Non-financial assets such as equipment and leasehold improvements, goodwill and intangible assets and right-of-use assets for operating leases are subject to non-recurring fair value measurements if they are deemed impaired. We had no re-measurements of non-financial assets to fair value in the three months ended March 31, 2021 or the three months ended March 31, 2020.  

10



The fair value for trade notes receivable is based on discounted future cash flows using current interest rates that would be offered for a similar transaction to a similarly situated customer. The difference between the carrying amount and estimated fair value for trade notes receivable is immaterial. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy. At March 31, 2021, our trade notes receivable were deemed to be fully collectible, and no trade notes receivable were past due more than 90 days or in a non-accrual status with respect to interest income.

7. SHARE-BASED COMPENSATION:


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

Employee Stock Incentive Plan

 

As of March 31, 2021, there were 124,501 shares of common stock reserved in the aggregate for issuance pursuant to future awards under our Employee Stock Incentive Plan and 468,304 shares of common stock reserved in the aggregate for issuance pursuant to outstanding awards under such plan. Although our Compensation Committee has authority to issue options, restricted stock, restricted stock units, share grants and other share-based benefits under our Employee Stock Incentive Plan, to date only restricted stock units and stock options have been granted under the plan. Options have been granted at an option price per share equal to the market value of our common stock on the date of grant, vest over a four year period and expire seven years after the date of grant. Restricted stock units vest over a four year period and entitle the holders to one share of our common stock for each restricted stock unit. Reserved shares underlying outstanding awards, including options and restricted stock units, that are forfeited are available under the Employee Stock Incentive Plan for future grant.


Non-Employee Director Stock Plan

 

As of March 31, 2021, there were 44,000 shares of common stock reserved in the aggregate for issuance pursuant to future restricted share grants under our Non-Employee Director Stock Plan and 8,000 shares of common stock reserved in the aggregate for issuance pursuant to outstanding stock option awards under our Non-Employee Director Stock Plan (which previously authorized the granting of stock options to non-employee directors). Under the terms of the plan, each non-employee director receives annual restricted share grants of 2,000 shares of our common stock on the date of each annual meeting at which such director is elected to serve on the board. The annual restricted share grants of common stock vest in four equal quarterly installments during the year after the grant date, provided the non-employee director is still serving as a director on the applicable vesting date. 


On the date of our 2020 annual meeting, we issued 8,000 shares of our common stock to our non-employee directors, which were restricted as specified in the Non-Employee Director Stock Plan. The shares granted at the 2020 annual meeting had an aggregate fair market value on the date of grant equal to $227,000 (grant date fair value of $28.34 per share). As of March 31, 2021, 6,000 of these shares were vested. The aggregate fair value of the 2,000 unvested shares based on the closing price of our common stock on March 31, 2021 was $52,000


Stock Option Activity


The following is a summary of stock option activity in the three months ended March 31, 2021:

 

 

 

 

 

 

 

 

Options Outstanding

 

Weighted Average Exercise
Price Per Share

Outstanding, December 31, 2020

419,100

 

 

$

15.22

 

Exercised

(7,250

)

 

17.16

 

Outstanding, March 31, 2021

411,850

 

 

$

15.19

 


 

 

 

Exercisable, March 31, 2021

286,776

 

 

$

12.91

 

 

11



The intrinsic value of an option is the amount by which the market price of the underlying common stock exceeds the option's exercise price. For options outstanding at March 31, 2021, the weighted average remaining contractual term of all outstanding options was 3.37 years and their aggregate intrinsic value was $4.5 million. At March 31, 2021, the weighted average remaining contractual term of options that were exercisable was 2.44 years and their aggregate intrinsic value was $3.8 million. The aggregate intrinsic value of stock options exercised was $78,000 in the three months ended March 31, 2021 and $140,000 in the three months ended March 31, 2020. We received proceeds from stock option exercises of $57,000 in the three months ended March 31, 2021 and $85,000 in the three months ended March 31, 2020. No stock options vested in the three months ended March 31, 2021 or the three months ended March 31, 2020. No stock options were granted, forfeited or expired in the three months ended March 31, 2021. 


Restricted Shares and Restricted Stock Units

Restricted shares are granted under our Non-Employee Director Stock Plan. Restricted stock units are granted under our Employee Stock Incentive Plan. The fair value of restricted shares and restricted stock units is equal to the fair market value of our common stock on the date of grant. The aggregate fair value of outstanding restricted shares and restricted stock units based on the closing share price of our common stock as of March 31, 2021 was $1.7 million. The aggregate fair value of restricted shares and restricted stock units that vested, based on the closing price of our common stock on the vesting date, was $56,000 in the three months ended March 31, 2021 and $45,000 in the three months ended March 31, 2020. No restricted shares or restricted stock units were granted or forfeited in the three months ended March 31, 2021.

 

The following is a summary of activity in restricted shares and restricted stock units in the three months ended March 31, 2021:

Restricted shares and restricted stock units

 

Shares

 

Weighted Average  Grant Date Fair Value

Non-vested at December 31, 2020

 

68,454

 

 

$

21.45

 

Vested

 

(2,000

)

 

28.34

 

Non-vested at March 31, 2021

 

66,454

 

 

$

21.24

 

 

Employee Stock Purchase Plan


We have an Employee Stock Purchase Plan available to eligible U.S. employees. Under the terms of the plan, eligible employees may designate from 1% to 10% of their compensation to be withheld through payroll deductions, up to a maximum of $6,500 in each plan year, for the purchase of common stock at 85% of the lower of the market price on the first or last day of the offering period (which begins on August 1st and ends on July 31st of each year). No shares were purchased under this plan in the three months ended March 31, 2021 or the three months ended March 31, 2020.  As of March 31, 2021, 136,971 shares remain available for future purchase under the Employee Stock Purchase Plan.


Share-Based Compensation Information 

All share-based payments to employees and non-employee directors, including grants of stock options, restricted stock units and restricted shares, are required to be recognized as an expense in our consolidated statements of income based on the grant date fair value of the award. We utilize the straight-line method of expense recognition over the award's service period for our graded vesting options. The fair value of stock options has been determined using the Black-Scholes model. We account for the impact of forfeitures related to employee share-based payment arrangements when the forfeitures occur. We have classified employee share-based compensation within our consolidated statements of income in the same manner as our cash-based employee compensation costs. 

Pre-tax share-based compensation expense in the three months ended March 31, 2021 totaled $334,000, and included $123,000 for stock options, $32,000 for our Employee Stock Purchase Plan, $123,000 for restricted stock units and $56,000 for restricted shares.

 

Pre-tax share-based compensation expense in the three months ended March 31, 2020 totaled $272,000, and included $114,000 for stock options, $23,000 for our Employee Stock Purchase Plan, $101,000 for restricted stock units and $34,000 for restricted shares.


At March 31, 2021, the total unrecognized compensation cost related to non-vested share-based compensation arrangements was $2.4 million and the related weighted average period over which such cost is expected to be recognized was 2.78 years.


12


8CHANGES IN STOCKHOLDERS’ EQUITY:

 

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


Three Months Ended March 31, 2021:

 

Common Stock

Accumulated

Other Comprehensive

Loss

 

Retained

Earnings

Total Stockholders’

Equity

(In thousands)

Shares

 

 Amount 

 

Balance, December 31, 2020

7,295

 

37,817

 

(1,102

)

 

28,813

 

65,528

 

Exercise of stock options, net of shares exchanged as payment   4


57








57

Share-based compensation

 

 

334

 

 

 

 

 

 

334

 

Other comprehensive loss, net of tax

 

 

 

 

(204

)

 

 

 

 

(204

)

Net income

 

 

 

 

 

 

1,441

 

 

1,441

 

Balance, March 31, 2021

7,299

 

38,208

 

(1,306

)

 

30,254

 

67,156


Three Months Ended March 31, 2020:

 

Common Stock

Accumulated

Other Comprehensive

Loss

 

Retained

Earnings

Total Stockholders’

Equity

(In thousands)

Shares

 

 Amount 

 

Balance, December 31, 2019

7,155

 

36,659

 

(1,406

)

 

23,071

 

58,324

 

Exercise of stock options, net of shares exchanged as payment
10


85








85

Share-based compensation

 

 

272

 

 

 

 

 

 

272

 

Other comprehensive loss, net of tax

 

 

 

 

(490

)

 

 

 

 

(490

)

Net income

 

 

 

 

 

 

844

 

 

844

 

Balance, March 31, 2020

7,165

 

37,016

 

(1,896

)

 

23,915

 

59,035


9. OTHER FINANCIAL STATEMENT DATA:


Inventories consisted of the following:

 

 

 

 

 

 

 

 

 

(In thousands)

 

March 31, 2021

 

December 31, 2020

Raw materials and purchased parts

 

$

12,766

 

 

$

11,903

 

Work in process

 

3,038

 

 

2,459

 

Finished goods

 

3,328

 

 

4,208

 

Demonstration inventories, net

 

1,530

 

 

1,701

 

Total inventories

 

$

20,662

 

 

$

20,271

 


Demonstration inventories are stated at cost less accumulated amortization, generally based on a 36 month useful life. Accumulated amortization for demonstration inventories totaled $2.7 million at March 31, 2021 and $2.7 million at December 31, 2020. Amortization expense related to demonstration inventories was $154,000 in the three months ended March 31, 2021 and $230,000 in the three months ended March 31, 2020.

Accrued expenses consisted of the following:

 

 

 

 

 

 

 

 

 

(In thousands)

 

March 31, 2021

 

December 31, 2020

Wages and benefits 

 

$

1,886

 

 

$

2,768

 

Warranty liability

 

851

 

 

793

 

Income taxes payable 

 

245

 

 

269

 

Other

 

121

 

 

63

 

 Total accrued expenses

 

$

3,103

 

 

$

3,893

 


13



Warranty costs: 


We provide for the estimated cost of product warranties, which cover products for periods ranging from one to three years, 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 in correcting product failures and service delivery expenses incurred to make these corrections. 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. At the end of each reporting period, we revise our estimated warranty liability based on these factors. The current portion of our warranty liability is included as a component of accrued expenses. The long-term portion of our warranty liability is included as a component of other liabilities.

A reconciliation of the changes in our estimated warranty liability is as follows:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

(In thousands)

 

2021

 

2020

Balance at beginning of period

 

$

839

 

 

$

798

 

Accrual for warranties

 

272

 

 

230

 

Warranty revision

 

(40

)

 

1

Settlements made during the period

 

(181

)

 

(244

)

Balance at end of period

 

890

 

 

785

 

Current portion of estimated warranty liability

 

(851

)

 

(748

)

Long-term estimated warranty liability

 

$

39

 

 

$

37

 


Deferred warranty revenue:


The current portion of our deferred warranty revenue is included as a component of advance customer payments. The long-term portion of our deferred warranty revenue is included as a component of other liabilities. A reconciliation of the changes in our deferred warranty revenue is as follows:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

(In thousands)

 

2021

 

2020

Balance at beginning of period

 

$

344

 

 

$

275

 

Revenue deferrals

 

147

 

 

134

 

Amortization of deferred revenue

 

(106

)

 

(100

)

Total deferred warranty revenue

 

385

 

 

309

 

Current portion of deferred warranty revenue

 

(281

)

 

(227

)

Long-term deferred warranty revenue

 

$

104

 

 

$

82

  


10. INTANGIBLE ASSETS: 


Intangible assets consist of the following: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2021

 

December 31, 2020

(In thousands)

 

Gross
Carrying
Amount


Accumulated
Amortization


Net


Gross
Carrying
Amount


Accumulated
Amortization


Net

Patents

 

$

1,866

 

 

$

(1,585

)

 

$

281

 

 

$

1,832

 

 

$

(1,542

)

 

$

290

 

Software

 

206

 

 

(206

)

 

 

 

206

 

 

(200

)

 

6

 

Marketing assets and customer relationships

 

86

 

 

(64

)

 

22

 

 

101

 

 

(72

)

 

29

 

    Total intangible assets

 

$

2,158

 

 

$

(1,855

)

 

$

303

 

 

$

2,139

 

 

$

(1,814

)

 

$

325

 


14



Amortization expense in the three months ended March 31, 2021 and the three months ended March 31, 2020 was as follows:  

 









 


Three Months Ended March 31,

(In thousands)


2021
2020

Patents


$ 43

$ 38

Software



6


8

Marketing assets and customer relationships



2


2

    Total amortization expense


$ 51

$ 48


Estimated aggregate amortization expense based on current intangible assets for the next four years is expected to be as follows: $116,000 for the remainder of 2021; $113,000 in 2022; $64,000 in 2023; and $10,000 in 2024.


11. REVENUE CONCENTRATIONS, SIGNIFICANT CUSTOMERS AND GEOGRAPHIC AREAS:


The following summarizes our revenue by product line:




Three Months Ended March 31,
(In thousands)
2021
2020

High Precision 3D and 2D Sensors


$ 6,357

$ 4,122

Inspection and Metrology Systems



6,339


8,361

Semiconductor Sensors   



5,036


3,946
Total
$ 17,732

$ 16,429


In the three months ended March 31, 2021, sales to significant customer A accounted for 22% of our total revenues. As of March 31, 2021, accounts receivable from significant customer A were $3.0 million.


Export revenues as a percentage of total revenues were 82% in the three months ended March 31, 2021 and 72% in the three months ended March 31, 2020. Export revenues are attributed to the country where the product is shipped. Substantially all of our export revenues are negotiated, invoiced and paid in U.S. dollars. Export revenues by geographic area are summarized as follows:


 

  Three Months Ended March 31,

(In thousands)

 

2021
2020

Americas 

 

$ 783

$ 401

Europe

 


3,500


2,103
China

5,163


3,880
Taiwan

730


1,716

Other Asia

 


4,143


3,680

Other

 


148



Total export sales

 

$ 14,467

$ 11,780

15



12. NET INCOME PER SHARE:  


Net income per basic share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Net income per diluted share is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares consist of common shares to be issued upon exercise of stock options, vesting of restricted stock units, vesting of restricted shares and from purchases of shares under our Employee Stock Purchase Plan, as calculated using the treasury stock method. Common equivalent shares are excluded from the calculation of net income per diluted share if their effect is anti-dilutive. The components of net income per basic and diluted share were as follows:

 

(In thousands except per share amounts)

 

Net Income

 

Weighted Average
Shares Outstanding

 

Per Share Amount

Three Months Ended March 31, 2021

 

 

 

 

 

 

 

 

 

Basic

 

$

1,441

 

7,293

 

 

$

0.20

Dilutive effect of common equivalent shares

 

 

 

170

 

 

(0.01

)

Dilutive

 

$

1,441

 

7,463

 

 

$

0.19


(In thousands except per share amounts) 

 

Net Income

 

Weighted Average
Shares Outstanding

 

Per Share Amount

Three Months Ended March 31, 2020

 

 

 

 

 

 

 

 

 

Basic

 

$

844

 

7,157

 

 

$

0.12

Dilutive effect of common equivalent shares

 

 

 

210

 

 

(0.01

)

Dilutive 

 

$

844

 

7,367

 

 

$

0.11


Potentially dilutive shares consist of stock options, restricted stock units, restricted shares and purchases of shares under our Employee Stock Purchase Plan. Potentially dilutive shares excluded from the calculations of net income per diluted share due to their anti-dilutive effect were as follows: 97,000 shares in the three months ended March 31, 2021 and 145,000 shares in the three months ended March 31, 2020.


13. OTHER COMPREHENSIVE LOSS:


Changes in components of other comprehensive loss and taxes related to items of other comprehensive loss are as follows:  


Three Months Ended March 31, 2021   Three Months Ended March 31, 2020
(In thousands) Before Tax
Tax Effect
  Net of Tax Amount
  Before Tax
  Tax Effect
  Net of Tax Amount
Foreign currency translation adjustments $ (147 ) $   $ (147 )   $ (600 )   $   $ (600 )
Unrealized gains (losses) on available-for-sale securities    (72 )   15     (57 )     140     (30 )     110
Other comprehensive loss    $ (219 )   $ 15   $ (204 )   $ (460 )   $ (30 )   $ (490 )


At March 31, 2021 and 2020, components of accumulated other comprehensive loss is as follows: 


(In thousands)

 

Foreign
Currency
Translation
Adjustments

 

Available- for-Sale
Securities

 

Accumulated
Other
Comprehensive
Loss

Balances at December 31, 2020

 

$

(1,285

)

 

$

183

 

$

(1,102

)

Other comprehensive loss for the three months ended March 31, 2021


(147

)

 

(57

)

(204

)

Balances at March 31, 2021

 

$

(1,432

)

 

$

126