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,~~September 30, 2019

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,~~October 31, 2019, there were ~~7,106,675~~7,128,199 shares of the registrant’s Common Stock, no par value, issued and outstanding.

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, 2019			December 31, 2018			September 30, 2019			December 31, 2018
ASSETS
Cash and cash equivalents	$	9,315		$	9,248		$	8,104		$	9,248
Marketable securities	7,684			5,771			7,792			5,771
Accounts receivable, less allowances of $270 at March 31, 2019 and $314 at December 31, 2018	13,037			15,859
Accounts receivable, less allowances of $283 at September 30, 2019 and $314 at December 31, 2018							13,322			15,859
Inventories	17,582			16,163			16,360			16,163
Other current assets	1,652			2,096			1,819			2,096
Total current assets	49,270			49,137			47,397			49,137

Marketable securities, long-term	8,688			10,322			9,392			10,322
Equipment and leasehold improvements, net	3,362			2,861			3,546			2,861
Intangible assets, net	324			333			295			333
Goodwill	1,366			1,366			1,366			1,366
Right-of-use assets (operating leases)	2,338			—			1,985			—
Other assets	252			259			249			259
Deferred tax assets	5,332			5,422			5,276			5,422
Total assets	$	70,932		$	69,700		$	69,506		$	69,700

LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	6,180		$	8,513		$	4,945		$	8,513
Advance customer payments	843			636			528			636
Accrued expenses	2,643			3,568			2,350			3,568
Current operating lease liabilities	254			—			686			—
Total current liabilities	9,920			12,717			8,509			12,717

Other liabilities	103			629			162			629
Long-term operating lease liabilities	3,591			—			3,178			—
Reserve for income taxes	143			143			143			143
Total liabilities	13,757			13,489			11,992			13,489

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, 7,106,675 shares issued and outstanding at March 31, 2019 and 7,100,825 shares issued and outstanding at December 31, 2018	35,940			35,637
Preferred stock, no par value, 5,000,000 shares authorized, NaN outstanding							—			—
Common stock, no par value, 25,000,000 shares authorized, 7,121,671 shares issued and outstanding at September 30, 2019 and 7,100,825 shares issued and outstanding at December 31, 2018							36,397			35,637
Accumulated other comprehensive loss	(1,557		)	(1,690		)	(1,786		)	(1,690		)
Retained earnings	22,792			22,264			22,903			22,264
Total stockholders’ equity	57,175			56,211			57,514			56,211
Total liabilities and stockholders’ equity	$	70,932		$	69,700		$	69,506		$	69,700

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

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

CYBEROPTICS CORPORATION

(Unaudited)


	Three Months Ended March 31,						Nine Months Ended September 30,
(In thousands)	2019			2018			2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	495		$	(173	)
Net income							$	606		$	1,634
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	663			625			2,102			1,876
Provision (recovery) for doubtful accounts	(44		)	17
Recovery for doubtful accounts							(31		)	(159		)
Deferred taxes	71			(139		)	107			261
Foreign currency transaction (gains) losses	70			(34		)
Foreign currency transaction gains							(112		)	(140		)
Share-based compensation	244			259			737			701
Unrealized loss on available-for-sale equity security	1			14			10			24
Realized gain on available-for-sale marketable securities							—			(3		)
Changes in operating assets and liabilities:
Accounts receivable	2,866			(1,357		)	2,568			(3,594		)
Inventories	(1,625		)	(239		)	(1,123		)	(387		)
Other assets	445			(229		)	235			(692		)
Accounts payable	(2,353		)	1,579			(3,538		)	1,124
Advance customer payments	207			130			(50		)	638
Accrued expenses	(600		)	36			(1,077		)	382
Operating lease assets and liabilities							482			—
Net cash provided by operating activities	440			489			916			1,665

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of available-for-sale marketable securities	1,052			2,162			6,144			6,018
Proceeds from sales of available-for-sale marketable securities	—			70			—			480
Purchases of available-for-sale marketable securities	(1,263		)	(2,621		)	(7,080		)	(7,006		)
Additions to equipment and leasehold improvements	(183		)	(348		)	(1,065		)	(1,079		)
Additions to patents	(32		)	(22		)	(88		)	(76		)
Net cash used in investing activities	(426		)	(759		)	(2,089		)	(1,663		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options	59			182			173			452
Repurchase of common stock							(353		)	—
Proceeds from issuance of common stock under employee stock purchase plan							203			219
Net cash provided by financing activities	59			182			23			671

Effects of exchange rate changes on cash and cash equivalents	(6		)	(8		)	6			16

Net increase (decrease) in cash and cash equivalents	67			(96		)	(1,144		)	689

Cash and cash equivalents – beginning of period	9,248			6,944			9,248			6,944
Cash and cash equivalents – end of period	$	9,315		$	6,848		$	8,104		$	7,633

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


	In Unrealized Loss Position For Less Than 12 Months					In Unrealized Loss Position For Greater Than 12 Months
(In thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
September 30, 2019
U.S. government and agency obligations	$	1,057	$	(2	)	$	2,282	$	(1	)
Corporate debt securities and certificates of deposit	20		—			80		—
Asset backed securities	50		—			733		—
Marketable securities	$	1,127	$	(2	)	$	3,095	$	(1	)
December 31, 2018
U.S. government and agency obligations	$	1,548	$	(4	)	$	4,608	$	(39	)
Corporate debt securities and certificates of deposit	250		—			1,178		(8		)
Asset backed securities	1,023		(3		)	2,137		(16		)
Marketable securities	$	2,821	$	(7	)	$	7,923	$	(63	)

December 31, 2018
(In thousands)

Cost

Unrealized
Gains

Unrealized
Losses

Fair Value
Short-Term

U.S. government and agency obligations

$
3,377

$
—

$
(20
)

$
3,357

Corporate debt securities and certificates of deposit

1,787

3

(5
)

1,785

Asset backed securities

633

—

(4
)

629

Marketable securities – short-term

$
5,797

$
3

$
(29
)

$
5,771

Long-Term

U.S. government and agency obligations

$
6,114

$
10

$
(23
)

$
6,101

Corporate debt securities and certificates of deposit

754

1

(3
)

752

Asset backed securities

3,422

2

(15
)

3,409

Equity security

42

18

—

60

Marketable securities – long-term

$
10,332

$
31

$
(41
)

$
10,322

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, 2019

U.S. government and agency obligations $ 149
$ — $ 4,618 $ (22 )
Corporate debt securities and certificates of deposit —
— 932 (3 )
Asset backed securities —
— 2,112
(9 )
Marketable securities $ 149
$ — $ 7,662 $ (34 )
December 31, 2018

U.S. government and agency obligations $ 1,548
$ (4 ) $ 4,608 $ (39 )
Corporate debt securities and certificates of deposit 250
— 1,178 (8 )
Asset backed securities 1,023
(3 ) 2,137 (16 )
Marketable securities $ 2,821
$ (7 ) $ 7,923 $ (63 )

~~Our investments in~~The marketable debt securities in which we have invested all have maturities of less than five years. Net pre-tax unrealized gains for marketable debt securities of~~$4,000~~ $75,000 at ~~March 31,~~September 30, 2019 and net pre-tax losses for marketable debt securities of $54,000 at December 31, 2018 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,~~September 30, 2019 and December 31, 2018 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 the fair value of the investment has been less than the cost basis, the credit quality of the investment and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. NoNaN marketable securities were sold in the three or nine months ended ~~March 31,~~September 30, 2019.. In the three and nine months ended ~~We received~~September 30, 2018, proceeds from sales of marketable securities of~~$70,000~~ intotaled $410,000 and $480,000, respectively. In both the three and nine months ended ~~March 31,~~September 30, 2018,~~. No~~ gains ~~or losses~~of $3,000 were recognized on ~~any of these~~the sales.

Investments in marketable securities classified as cash equivalents of ~~$4.9~~$3.9 million at ~~March 31,~~September 30, 2019 and $2.5 million at December 31, 2018 consist of corporate debt securities and certificates of deposit. There were no0 unrealized gains or losses with respect to any of these securities at ~~March 31,~~September 30, 2019 or December 31, 2018.

Cash and marketable securities held by foreign subsidiaries totaled ~~$345,000~~$405,000 at ~~March 31,~~September 30, 2019 and $362,000 at December 31, 2018.

5. 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,~~September 30, 2019 and December 31, 2018 according to the three-level fair value hierarchy:

	Fair Value Measurements at March 31, 2019 Using								Fair Value Measurements at September 30, 2019 Using
(In thousands)	Balance March 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance September 30, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Marketable securities:
U.S. government and agency obligations	$	9,361	$	—	$	9,361	$	—	$	10,824	$	—	$	10,824	$	—
Corporate debt securities and certificates of deposit	2,658		—		2,658		—		2,785		—		2,785		—
Asset backed securities	4,294		—		4,294		—		3,526		—		3,526		—
Equity security	59		59		—		—		49		49		—		—
Total marketable securities	$	16,372	$	59	$	16,313	$	—	$	17,184	$	49	$	17,135	$	—


	Fair Value Measurements at December 31, 2018 Using
(In thousands)	Balance December 31, 2018		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	$	9,458	$	—	$	9,458	$	—
Corporate debt securities and certificates of deposit	2,537		—		2,537		—
Asset backed securities	4,038		—		4,038		—
Equity security	60		60		—		—
Total marketable securities	$	16,093	$	60	$	16,033	$	—

During the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and the year ended December 31, 2018, 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 disclosed 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, which obtain the valuations 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 such as cash equivalents, accounts receivable, other assets, accounts payable, advance customer payments, accrued expenses and other liabilities are approximately equal to their related fair values due to their short-term maturities. Non-financial assets such as equipment and leasehold improvements and goodwill and other intangible assets are subject to non-recurring fair value measurements if they are deemed impaired. We had no0 re-measurements of non-financial assets to fair value in the ~~three~~nine months ended ~~March 31,~~September 30, 2019 or the ~~three~~nine months ended ~~March 31,~~September 30, 2018.

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,~~September 30, 2019, the weighted average remaining contractual term of all outstanding options was ~~3.8~~3.3 years and their aggregate intrinsic value was ~~$3.3~~$2.1 million. At ~~March 31,~~September 30, 2019, the weighted average remaining contractual term of options that were exercisable was ~~3.0~~2.6 years and their aggregate intrinsic value was ~~$2.9~~$1.9 million. The aggregate intrinsic value of stock options exercised in the ~~three~~nine months ended ~~March 31,~~September 30, 2019 was ~~$57,000.~~$121,000. We received proceeds from stock option exercises of ~~$59,000~~$173,000 in the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and ~~$182,000~~$452,000 in the ~~three~~nine months ended ~~March 31,~~September 30, 2018. The aggregate fair value of options that vested in the ~~three~~nine months ended ~~March 31,~~September 30, 2019 was $5,000.

Restricted shares are granted under our Non-Employee Director Stock Plan. There were no8,000 restricted shares granted in the ~~three~~nine months ended ~~March 31,~~September 30, 2019. Restricted stock units are granted under our Employee Stock Incentive Plan. NoNaN restricted stock units were granted in the ~~three~~nine months ended ~~March 31,~~September 30, 2019. The aggregate fair value of outstanding restricted shares and restricted stock units based on the closing share price of our common stock as of ~~March 31,~~September 30, 2019 was ~~$915,000.~~$822,000. 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 ~~$43,000~~$105,000 in the ~~three~~nine months ended ~~March 31,~~September 30, 2019.

The following is a summary of activity in non-vested restricted shares and restricted stock units in the ~~three~~nine months ended ~~March 31,~~September 30, 2019:

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~~1st and ends on July ~~31st~~31st of each year). NoThere were 17,781 shares ~~were purchased~~issued under this plan in the ~~three~~nine months ended ~~March 31,~~September 30, 2019. As of ~~March 31,~~September 30, 2019, ~~174,469~~156,688 shares remain available for future purchase under the Employee Stock Purchase Plan.

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

Share-based compensation expense in the three months ended ~~March 31,~~September 30, 2019 totaled $244,000, and included ~~$107,000~~$110,000 for stock options, ~~$29,000~~$21,000 for our Employee Stock Purchase Plan, ~~$76,000~~$78,000 for ~~unvested~~ restricted stock units and ~~$32,000~~$35,000 for ~~unvested~~ restricted shares.Share-based compensation expense in the nine months ended September 30, 2019 totaled $737,000, and included $327,000 for stock options, $81,000 for our Employee Stock Purchase Plan, $231,000 for restricted stock units and $98,000 for restricted shares.

Share-based compensation expense in the three months ended ~~March 31,~~September 30, 2018 totaled ~~$259,000,~~$217,000, and included ~~$125,000~~$94,000 for stock options, ~~$34,000~~$31,000 for our Employee Stock Purchase Plan, $59,000 for ~~unvested~~ restricted stock units and ~~$41,000~~$33,000 for ~~unvested~~ restricted shares.Share-based compensation expense in the nine months ended September 30, 2018 totaled $701,000, and included $328,000 for stock options, $86,000 for our Employee Stock Purchase Plan, $176,000 for restricted stock units and $111,000 for restricted shares.

At ~~March 31,~~September 30, 2019, the total unrecognized compensation cost related to non-vested share-based compensation arrangements was ~~$1.9~~$1.6 million and the related weighted average period over which such cost is expected to be recognized is ~~2.84~~2.35 years.

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 to us by suppliers, warranty obligations do arise. These obligations are affected by product failure rates, the ~~costs~~cost of materials used in correcting product failures and service delivery expenses incurred ~~in correcting a product failure.~~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:

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:

Amortization expense for our intangible assets in the three and nine months ended ~~March 31,~~September 30, 2019 and the three and nine months ended ~~March 31,~~ September 30, 2018 was as follows:

Amortization of patents has been classified as research and development expense in the accompanying consolidated statements of operations. Estimated aggregate future amortization expense based on current intangible assets is expected to be as follows: ~~$118,000~~$42,000 for the remainder of 2019; ~~$130,000~~$149,000 in 2020; ~~$55,000~~$74,000 in 2021; ~~$10,000~~$19,000 in 2022; $9,000 in 2023; and $2,000 in 2024.

Intangible and other long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment loss is recognized when future undiscounted cash flows expected to result from use of the asset and its eventual disposition are less than the carrying amount. There were 0 impairments in the nine months ended September 30, 2019 or the nine months ended September 30, 2018.

In the ~~three~~nine months ended ~~March 31,~~September 30, 2019, sales to significant customer A accounted for ~~15%~~12% of our total revenue. As of ~~March 31,~~September 30, 2019, accounts receivable from significant customer A were ~~$915,000.~~$1.5 million.

11. NET INCOME (LOSS) PER SHARE:

Basic net income (loss) per share for a period is computed by dividing net income (loss) by the weighted average number of common 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. 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. All common equivalent shares ~~are~~were excluded from the calculation of net loss per diluted share due to their anti-dilutive effect. 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 (loss) 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, 2019

Basic

$
495

7,100

$
0.07
Dilutive effect of common equivalent shares

—

222

—
Dilutive

$
495

7,322

$
0.07

(In thousands except per share amounts)	Net Loss			Weighted Average Shares Outstanding	Per Share Amount
Three Months Ended September 30, 2019
Basic	$	(353	)	7,117	$	(0.05	)
Dilutive effect of common equivalent shares	—			—	—
Dilutive	$	(353	)	7,117	$	(0.05	)

(In thousands except per share amounts)	Net Income		Weighted Average Shares Outstanding	Per Share Amount
Three Months Ended September 30, 2018
Basic	$	1,067	7,041	$	0.15
Dilutive effect of common equivalent shares	—		258	—
Dilutive	$	1,067	7,299	$	0.15

(In thousands except per share amounts)

Net Loss

Weighted Average
Shares Outstanding

Per Share Amount
Three Months Ended March 31, 2018

Basic

$
(173
)

6,986

$
(0.02
)
Dilutive effect of common equivalent shares

—

—

—
Dilutive

$
(173
)

6,986

$
(0.02
)

(In thousands except per share amounts)	Net Income		Weighted Average Shares Outstanding	Per Share Amount
Nine Months Ended September 30, 2019
Basic	$	606	7,108	$	0.09
Dilutive effect of common equivalent shares	—		137	(0.01		)
Dilutive	$	606	7,245	$	0.08

(In thousands except per share amounts)	Net Income		Weighted Average Shares Outstanding	Per Share Amount
Nine Months Ended September 30, 2018
Basic	$	1,634	7,012	$	0.23
Dilutive effect of common equivalent shares	—		164	—
Dilutive	$	1,634	7,176	$	0.23

Potentially dilutive shares excluded from the calculations of net income ~~(loss)~~ per diluted share due to their anti-dilutive effect were as follows: ~~160,000~~567,000 shares in the three months ended ~~March 31,~~September 30, 2019; ~~and~~309,000 shares in the ~~615,000~~nine months ended September 30, 2019;118,000 shares in the three months ended ~~March 31,~~September 30, 2018; and 285,000 shares in the nine months ended September 30, 2018.

12.12. OTHER COMPREHENSIVE ~~INCOME:~~

LOSS:

Reclassification adjustments are made to avoid double counting for items included in other comprehensive ~~income~~loss that are also recorded as part of net income (loss). Reclassifications and taxes related to items of other comprehensive ~~income~~loss are as ~~follows:~~follows:

	Three Months Ended March 31, 2019							Three Months Ended March 31, 2018								Three Months Ended September 30, 2019								Three Months Ended September 30, 2018
(In thousands)		Before Tax		Tax Effect			Net of Tax Amount		Before Tax			Tax Effect		Net of Tax Amount		Before Tax			Tax Effect		Net of Tax Amount			Before Tax			Tax Effect		Net of Tax Amount
Foreign currency translation adjustments	$	87	$	—		$	87	$	220		$	—	$	220		$	(269	)	$	—	$	(269	)	$	(50	)	$	—	$	(50	)
Net changes related to available-for-sale securities:
Unrealized losses		58		(12	)		46		(40	)		9		(31	)
Unrealized gains																	1			—		1			3			—		3
Reclassifications included in interest income and other		—		—			—		—			—		—			—			—		—			(3	)		—		(3	)
Net changes related to available-for-sale securities		58		(12	)		46		(40	)		9		(31	)		1			—		1			—			—		—
Other comprehensive income	$	145	$	(12	)	$	133	$	180		$	9	$	189
Other comprehensive loss																$	(268	)	$	—	$	(268	)	$	(50	)	$	—	$	(50	)

	Nine Months Ended September 30, 2019									Nine Months Ended September 30, 2018
(In thousands)	Before Tax			Tax Effect			Net of Tax Amount			Before Tax			Tax Effect		Net of Tax Amount
Foreign currency translation adjustments	$	(199	)	$	—		$	(199	)	$	(252	)	$	—	$	(252	)
Net changes related to available-for-sale securities:
Unrealized gains (losses)		129			(26	)		103			(33	)		8		(25	)
Reclassifications included in interest income and other		—			—			—			(3	)		—		(3	)
Net changes related to available-for-sale securities		129			(26	)		103			(36	)		8		(28	)
Other comprehensive loss	$	(70	)	$	(26	)	$	(96	)	$	(288	)	$	8	$	(280	)

At ~~March 31,~~September 30, 2019 and ~~March 31,~~September 30, 2018, components of accumulated other comprehensive loss are as follows:

(In thousands)

Foreign
Currency
Translation
Adjustments

Available- for-Sale
Securities

Accumulated
Other
Comprehensive
Loss
Balances at December 31, 2018

$
(1,649
)

$
(41
)

$
(1,690
)
Other comprehensive income before reclassifications

87

46
133
Amounts reclassified from accumulated other comprehensive loss

—

—

—
Total change for the period

87

46

133
Balances at March 31, 2019

$
(1,562
)

$
5

$
(1,557
)

(In thousands)	Foreign Currency Translation Adjustments			Available- for-Sale Securities			Accumulated Other Comprehensive Loss
Balances at December 31, 2018	$	(1,649	)	$	(41	)	$	(1,690	)
Other comprehensive income (loss) for the nine months ended September 30, 2019	(199		)	103			(96		)
Balances at September 30, 2019	$	(1,848	)	$	62		$	(1,786	)

(In thousands)

Foreign
Currency
Translation
Adjustments

Available- for-Sale
Securities

Accumulated
Other
Comprehensive
Loss
Balances at December 31, 2017

$
(1,394
)

$
(15
)

$
(1,409
)
Decrease related to adoption of ASU 2016-01
—

(44 )
(44 )
Other comprehensive income (loss) before reclassifications

220

(31
)

189

Amounts reclassified from accumulated other comprehensive loss

—

—

—

Total change for the period

220

(75
)

145

Balances at March 31, 2018

$
(1,174
)

$
(90
)

$
(1,264
)

(In thousands)	Foreign Currency Translation Adjustments			Available- for-Sale Securities			Accumulated Other Comprehensive Loss
Balances at December 31, 2017	$	(1,394	)	$	(15	)	$	(1,409	)
Decrease related to adoption of ASU 2016-01	—			(44		)	(44		)
Other comprehensive loss for the nine months ended September 30, 2018	(252		)	(25		)	(277		)
Amounts reclassified from accumulated other comprehensive loss	—			(3)			(3)
Total change for the period	(252		)	(72		)	(324		)
Balances at September 30, 2018	$	(1,646	)	$	(87	)	$	(1,733	)

1517

13. INCOME TAXES:

We recorded an income tax benefit of $234,000 in the three months ended September 30, 2019, compared to income tax expense of $297,000 in the three months ended September 30, 2018.We recorded income tax expense of ~~$134,000~~$92,000 in the~~three~~ nine months ended ~~March 31,~~September 30, 2019, compared to ~~an income tax benefit of $83,000~~ ~~in the~~ ~~three months ended March 31, 2018~~. Our income tax expense of $444,000in the ~~three~~nine months ended ~~March 31, 2019~~September 30, 2018. Our ~~reflected~~ ~~an effective~~ ~~income tax rate of approximately 21%, which included $9,000 of excess tax benefits from employee share-based payments.~~ ~~Our~~ income tax benefit in the three~~three~~ months ended ~~March 31,~~September 30, 2019 reflectedan effectivetax rate of approximately 40%, compared to an effective tax rate ofapproximately 22% in the three months ended September 30, 2018. ~~reflected an~~Our ~~effective~~ income tax ~~rates~~expense in the nine months ended September 30, 2019 reflected an effective tax rate of approximately ~~32%~~13%, ~~which included $35,000~~compared to an effective tax rate of approximately 21% in the ~~of excess tax benefits from employee share-based payments.~~ nine months ended September 30, 2018~~Our~~. Fluctuations in our effective tax rate in both the three and nine months ended ~~March 31,~~September 30, 2019 ~~and~~ are related to a non-cash income benefit resulting from the ~~three~~completion of an audit of our income taxes in the Singapore tax jurisdiction. In the nine months ended ~~March 31,~~ September 30, 2019 and 2018 ~~was~~, excess tax benefits related to employee share based payments totaled $11,000 and $70,000, respectively. On a recurring basis, our effective income tax rate is significantly impacted by Global Intangible Low Tax Income ~~(GILTI),~~and U.S. federal R&D tax ~~credits and~~ ~~excess tax benefits from employee share-based payments.~~ credits.

We have significant deferred tax assets as a result of temporary differences between taxable income on our tax returns and U.S. GAAP income, research and development tax credit carry forwards and federal, state and foreign 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 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~~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.

~~The Inland Revenue Authority of Singapore is reviewing our~~ ~~2016~~ ~~and~~ ~~2015~~ ~~income tax returns. We anticipate that the outcome of these audits will not have a significant impact on our financial position or results of operations.~~

14. OPERATING LEASES:

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and long-term operating lease liabilities in our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The operating lease ROU ~~excludes~~assets exclude lease incentives. As our leases do not provide an implicit rate, we use our incremental borrowing rate to determine the present value of lease payments. Our leases may include renewal options to extend the lease term, the exercise of which are at our sole discretion. ~~Our~~In our accounting treatment of leases, the lease terms used do not include any option to extend the lease, because it is not reasonably certain that we will exercise the option. Lease expense is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components (e.g., common-area or other maintenance costs) which are generally accounted for separately and expensed monthly. We do not recognize a ROU asset and lease liability for leases having a term of 12 months or less at the effective date.

We lease a 61,208 square foot ~~mixed~~mixed-use office and warehouse facility in Golden Valley, Minnesota. The lease has a term of 91 months and expires on July 31, 2026. The lease contains a rent escalation clause, ~~one~~1 three year renewal option and incentives. Rental expense, including the effects of lease incentives, is recognized on a straight-line basis over the term of the lease. We are also required to pay insurance, property taxes and other operating expenses related to the leased facility, which are not fixed or tied to an index.

We lease a 19,805 square foot ~~mixed~~mixed-use office and warehouse facility in Singapore. The lease expires in July 2020, contains a rent escalation clause and ~~one~~1 three year renewal option. We also have operating leases for sales offices in the United Kingdom and China, which expire in May 2023 and November 2020, respectively. We did not enter into any new leases in the ~~three~~nine months ended ~~March 31,~~September 30, 2019.

1618

The components of our costs for operating leases in the three and ~~three~~nine months ended ~~March 31,~~September 30, 2019 are as follows:


Component	(In thousands)
			Three Months Ended		Nine Months Ended
Component (in thousands)			September 30, 2019		September 30, 2019
Operating lease cost	$	180	$	179	$	538
Variable lease cost	67			67	202
Short-term lease cost	2			2	5
Total	$	249	$	248	$	745

Variable lease costs generally consists of real estate taxes and insurance for leased facilities, which are paid based on actual costs incurred by the lessor.

At ~~March 31,~~September 30, 2019, the future maturities of lease liabilities are as follows:


Twelve months ending March 31,	(In thousands)
Twelve months ending September 30,			(In thousands)
2020	$	688	$	801
2021	711		607
2022	615		622
2023	630		638
2024	646		654
2025 & Thereafter	1,571
2025 and thereafter			1,242
Total lease payments		4,861		4,564
Less: amount representing interest	1,016		700
Present value of operating lease liabilities	$	3,845	$	3,864

At ~~March 31,~~September 30, 2019, the weighted average remaining term for our operating leases is ~~6.56~~6.24 years, and the weighted average discount rate applied to our operating leases was ~~5.73%~~5.74%.

Cash paid for amounts included in the measurement of operating lease liabilities in the ~~three~~nine months ended ~~March 31,~~September 30, 2019 was ~~$98,000.~~$389,000. Incentives recorded as leasehold improvements in the ~~three~~nine months ended ~~March 31,~~September 30, 2019 were ~~$691,000.~~$783,000.

Because we have not restated prior year information for our adoption of Topic 842, the following presents our future minimum lease payments for operating leases under ASC Topic 840. These amounts include common-area or other maintenance costs under ASC Topic 840 (which was replaced by Topic 842). At December 31, 2018, the future minimum lease payments required under noncancelable operating lease agreements were as follows:


Year ending December 31,	(In thousands)
2019	$	1,095
2020	1,298
2021	1,049
2022	1,064
2023	1,080
2024 & Thereafter	3,049
Total	$	8,635

15. SHARE REPURCHASES:

In July 2019, our Board of Directors authorized a $3.0 million share repurchase program. Our common stock may be acquired from time to time in open market transactions, block purchases and other transactions complying with the Securities and Exchange Commission's Rule 10b-18. In the three and nine months ended September 30, 2019, we spent $353,000 to repurchase 25,985 shares of our common stock. The share repurchase program will terminate on June 30, 2020. See Item 2 of Part II of this report.

1516. CONTINGENCIES:

We are periodically a defendant in miscellaneous lawsuits, claims and disputes in the ordinary course of business. While the outcome of these matters cannot be predicted with certainty, management presently believes the disposition of these matters will not have a material effect on our financial position, results of operations or cash flows.

In the normal course of business to facilitate sales of our products and services, we at times indemnify other parties, including customers, with respect to certain matters. In these instances, we have agreed to hold the other parties harmless against losses arising out of intellectual property infringement or other types of claims. These agreements may limit the time within which an indemnification claim can be made, and almost always ~~limit~~limits the amount of the claim. It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made, if any, under these agreements have not had a material impact on our operating results, financial position or cash flows. However, there can be no assurance that intellectual property infringement and other claims against us or parties we have indemnified will have the same impact in the future.

1720

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS:

The following management’s discussion and analysis of the financial condition and results of operations of CyberOptics Corporation ("we", "us" and "our") contains a number of estimates and predictions that are forward looking statements rather than statements based on historical fact. Among other matters, we discuss (i) our level of anticipated revenues, gross margins, and expenses; (ii) the timing of orders and shipments of our existing products, particularly the SQ3000, our 3D automated optical inspection ("AOI") system; (iii) the timing of initial revenue and projected improvements in gross margins from sales of new products that have been recently introduced, that we have under development or that we anticipate introducing in the future; (iv) the amount of anticipated revenue and potential revenue opportunity from recently introduced new products or potential new products we may launch in the future; ~~and~~ (v) our assessment of trends in the economy in general ~~economy~~and, the surface mount technology ("SMT") and semiconductor capital equipment markets in particular, and their impact on the markets for our ~~products.~~products; and (vi) changes in the level of tariffs and other trade policies of the United States. Although we have made these statements based on our experience and expectations regarding future events, there may be events or factors that we have not anticipated, and the accuracy of our forward-looking statements and estimates are subject to a number of risks, including those risks identified in our Annual Report on Form 10-K for the year ended December 31, 2018.

RESULTS OF OPERATIONS

General

As a leading global developer and manufacturer of high precision 3D3D sensors, our strategy is to leverage our 3D3D sensor technologies in ~~our three key vertical markets: surface mount technology ("SMT"); semiconductor;~~the SMT and ~~metrology.~~semiconductor capital equipment markets. A key element in our strategy is the continued development and sale of new high precision 3D sensors based on our proprietary multi-reflection suppression ("MRS") technology. We believe that MRS is a break-through optical technology for high precision inspection and metrology. Our operating results in the three and nine months ended September 30, 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 the three months ended September 30, 2019 marked the trough of the downturn in the SMT and semiconductor capital equipment markets, and that industry conditions will strengthen moving forward. 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, ~~with~~and we believe MRS has the potential to expand our ~~markets~~presence in the ~~future.~~ 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. ~~As a result, we~~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~~believe our 3D3D MRS technology platform is well suited for many applications in these markets, particularly with respect to complex circuit boards and semiconductor ~~back-end, mid-end~~wafer level 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~~SQ3000 and ~~SQ3000™ 3D~~SQ3000™ 3D CMM AOI systems, which are designed to expand our presence in SMT and semiconductor markets requiring high precision measurement and inspection. In these markets, identifying defects has become highly challenging and critical due to smaller and more complex electronics packaging and increasing component density on circuit boards. The ~~SQ3000™ 3D~~SQ3000™ 3D CMM AOI system combines automated optical inspection and metrology functionality in a single product. Manufacturers in a variety of industries, including ~~the~~ SMT and semiconductor ~~markets~~manufacturers, can use the ~~SQ3000™ 3D~~SQ3000™ 3D CMM AOI system as an in-line or off-line metrology tool to help solve complex manufacturing and product quality challenges.

•

Our high-precision 3D3D MRS sensors, which we sell to original equipment manufacturers ("OEMs") and system integrators, that produce inspection and metrology equipment for the SMT and semiconductor industries. We have entered into an agreement to supply KLA with high-precision 3D MRS sensors for its back-end semiconductor packaging inspection systems. We also have entered into an agreement to supply Nordson-YESTECH with high precision 3D MRS sensors for its inspection systems serving the SMT market.

•

Our next generation ultra-high resolution ~~3-micron~~three micron pixel 3D3D NanoResolution MRS sensor is capable of measuring feature sizes down to 3025 microns accurately and at high speeds, and is suitable for many semiconductor ~~mid-end~~wafer level and advanced packaging inspection and metrology applications. We are targeting one micron, ~~three-sigma~~three-sigma accuracy, at speeds that would inspect more than ~~20 300-millimeter~~25300-millimeter wafers in an hour. We have received initial purchase orders for our 3D NanoResolution MRS sensor from three OEM customers, and are currently demonstrating this technology to other OEMs, ~~and~~ system integrators and directly to semiconductor manufacturers. We believe sales of 3D3D MRS-enabled sensors and systems for semiconductor ~~back-end, mid-end~~wafer level and advanced packaging inspection and metrology applications represent ~~significant~~compelling long-term growth ~~opportunities, and we expect sales of sensors and systems for these applications to ramp up in the second half of 2019 and beyond.~~opportunities.

1821

~~Revenue~~While we are optimistic about the future sales of MRS-based products, revenue from ~~MRS based~~all MRS-based products ~~including 3D AOI systems, high precision 3D MRS sensors and CyberGage®360~~ totaled ~~$4.3~~$14.9 million in the ~~three~~nine months ended ~~March 31,~~September 30, 2019, ~~virtually unchanged~~a decrease of approximately 1% from $15.0 million in the ~~three~~nine months ended ~~March 31, 2018.~~September 30, 2018. Sales of 3D3D MRS sensors ~~declined 18%~~decreased 25% on a year-over-year basis in the ~~three~~nine months ended ~~March 31,~~September 30, 2019 to ~~$1.7~~$4.1 million, as OEM customers reduced their orders due to sluggish market conditions in the global SMT and semiconductor capital equipment markets. Despite the weak market conditions, sales of 3D3D MRS-enabled ~~SQ3000~~ SQ3000 and SQ3000™ 3D CMM AOI systems increased ~~12%~~14% on a year-over-year basis in the ~~three~~nine months ended ~~March 31,~~September 30, 2019 to ~~$2.5~~$10.4 million. ~~We believe~~In the future, we ~~will be able to increase sales of products based on our MRS technology in the SMT, semiconductor and metrology markets. We~~ anticipate increasing sales of MRS-based products in the SMT and semiconductor capital equipment markets by utilizing new OEM customers and system integrators and by expanding direct sales to end-user customers.

We have continued to invest in our semiconductor sensors, principally consisting of our WaferSense® family of products, because fabricators of semiconductors and other customers view these products as valuable tools for improving yields and productivity. Additional WaferSense® applications are currently under ~~development, and~~development. Over the longer-term, strong future sales growth is anticipated for our WaferSense® family of products.

Our backlog was ~~$11.6~~$14.4 million at ~~March 31,~~September 30, 2019 ~~a decrease~~, up from $$13.0~~13.6~~ million at ~~December 31, 2018 and $~~June 30, 2019, but down from $19.7~~12.1~~ million at ~~March 31,~~September 30, 2018. Our backlog at ~~March 31,~~September 30, 2019 includes a large order for 3D MRS sensors from an existing OEM customer which ~~includes orders~~are scheduled mostly for delivery after 2019. We are forecasting total sales of ~~$1.7~~$13.5 to $15.0 million for ~~MX600 memory module inspection systems, was affected by sluggish market conditions in~~ the ~~global SMT and semiconductor markets that emerged late~~fourth quarter of 2019, down from $18.1 million in the fourth quarter of ~~2018. As a result, we are forecasting sales of $15.0 to $16.5~~2018, but up from $12.4 million ~~for~~in the ~~second~~third quarter of ~~2019, which includes $1.1 million of revenue from our MX600 order backlog.~~2019. We believe that ~~our family of 3DMRS-enabled sensors, inspection~~conditions in the SMT and metrology systems are providing us with a significant competitive advantage and strong growth opportunities in our targeted markets. Higher sales of these technologically advanced products, coupled with the steadily growing acceptance of our WaferSense family, is forecasted to drive our sales growth and profitability in 2019 and beyond. semiconductor capital equipment markets will strengthen as we progress through 2020. We believe that we have the resources required to attain our growth objectives, given our available cash and marketable securities balances totaling ~~$25.7~~$25.3 million at ~~March 31, 2019.~~September 30, 2019.

Revenues

Our revenues ~~increased~~decreased by 626% to $~~15.0~~12.4 million in the three months ended ~~March 31,~~September 30, 2019, from $~~14.1~~16.7 million in the three months ended ~~March 31,~~September 30, 2018. Our revenues decreased by 9% to $42.4 million in the nine months ended September 30, 2019 from $46.7 million in the nine months ended September 30, 2018. The following table sets forth revenues by product line for the three and nine months ended ~~March 31,~~September 30, 2019 and 2018:

	Three Months Ended March 31,							Three Months Ended September 30,								Nine Months Ended September 30,
(In thousands)	2019		2018		% Change			2019		2018		% Change				2019		2018		% Change
High Precision 3D and 2D Sensors	$	3,749	$	5,055	(26	)	%	$	3,170	$	5,388		(41	)	%	$	8,923	$	15,696		(43	)	%
Semiconductor Sensors		4,136		3,161	31		%		3,676		3,463		6		%		10,934		10,564		4		%
Inspection and Metrology Systems		7,091		5,904	20		%		5,545		7,832		(29	)	%		22,554		20,397		11		%
Total	$	14,976	$	14,120	6		%	$	12,391	$	16,683		(26	)	%	$	42,411	$	46,657		(9	)	%

Revenues from sales of high precision 3D and 2D sensors decreased by $~~1.3~~2.2 million or 2641% to ~~$3.7~~$3.2 million in the three months ended ~~March 31,~~September 30, 2019, from ~~$5.1~~$5.4 million in the three months ended ~~March 31,~~September 30, 2018. InRevenues from sales of high precision 3D and 2D sensors decreased by $6.8 million or 43% to $8.9 million in the ~~three~~nine months ended ~~March 31,~~September 30, 2019, from $15.7 million in the nine months ended September 30, 2018. OEM customers ~~for high precision 3D and 2D sensors~~ reduced their purchases of high precision 3D and 2D sensors in the three and nine months ended September 30, 2019 in response to weak conditions in the global SMT and semiconductor ~~markets. Sales of 3D MRS-enabled sensors decreased by $376,000 or 18% to $1.7 million in the~~capital equipment markets. ~~three months ended March 31, 2019, when compared to the~~ ~~three months ended March 31, 2018~~.~~Sales of legacy 2D LaserAlign sensors decreased by $930,000 or 32% to $2.0 million in the~~ ~~three months ended March 31, 2019~~, ~~when compared to the same period last year.~~ Sales of high precision 3D and 2D sensors are dependent on the success of our OEM customers selling products that incorporate our sensors. ~~Weakness in high precision~~Due to ongoing market weakness, our 3D and 2D sensor sales ~~is expected~~are forecasted to ~~persist, resulting in a significant year-over-year~~ decline in ~~sensor sales in~~ the ~~second~~fourth quarter of ~~2019. Sales~~2019, both sequentially and on a year-over-year basis. However, we believe sales of ~~high precision~~ 3D ~~and~~MRS-enabled sensors will rebound, starting in early 2020. We believe sales of older 2D legacy sensors ~~are expected to~~will also rebound, ~~during the second half of 2019 as SMT and semiconductor markets begin to improve.~~but recovery may not happen until later in 2020. We believe sales of our new 3D MRS enabled sensors will represent an increasing percentage of our total high precision 3D3D and 2D2D sensor sales in the future. ~~However, q~~Quarterly~~uarterly~~ sales of high precision 3D and 2D sensors, including 3D MRS enabled sensors, are prone to significant fluctuations ~~both sequentially and on a year-over-year basis.~~due to variations in market demand.

Revenues from sales of semiconductor sensors, principally our WaferSense product line, increased by ~~$975,000~~$213,000 or 316% to ~~$4.1~~$3.7 million in the three months ended ~~March 31,~~September 30, 2019, from ~~$3.2~~$3.5 million in the three months ended ~~March 31,~~September 30, 2018. ~~The revenue increase was driven~~Revenue from sales of semiconductor sensors increased by ~~orders received~~$370,000 or 4% to $10.9 million in the nine months ended September 30, 2019, from ~~advanced~~$10.6 million in the nine months ended September 30, 2018. We believe higher sales of semiconductor sensors in the three months ended September 30, 2019 are due to initial signs of improvement in the global semiconductor capital equipment market, particularly with respect to foundry customers. In the nine months ended September 30, 2019, higher sales of semiconductor sensors are due to the recent improvement in market conditions, and incremental sales of WaferSense products in the first quarter of 2019 to Asian semiconductor manufacturing facilities commissioned in ~~2018 that have deployed our WaferSense sensors to improve yield.~~2018. Sales of ~~WaferSense~~semiconductor sensors are forecasted to ~~be essentially flat~~increase by more than 10% in the fourth quarter of 2019 on a year-over-year ~~basis in~~basis. Over the ~~second quarter of 2019 due to short-term weakness in the semiconductor market. We~~longer-term, we anticipate that the benefits from growing market awareness of our WaferSenseproducts, improved account penetration at major semiconductor manufacturers and capital equipment suppliers and new product introductions will lead to additional WaferSense product ~~sales in future periods.~~
sales.

1922

Revenues from sales of inspection and metrology systems decreased by $2.3 million or 29% to $5.5 million in the three months ended September 30, 2019, from $7.8 million in the three months ended September 30, 2018.Revenues from sales of inspection and metrology systems increased by $~~1.2~~2.2 million or 2011% to ~~$7.1~~$22.6 million in the ~~three~~nine months ended ~~March 31,~~September 30, 2019, from ~~$5.9~~$20.4 million in the nine months ended September 30, 2018. The revenue decrease in the three months ended ~~March 31, 2018~~.September 30, 2019 was caused by sluggish market conditions in the global SMT and semiconductor capital equipment markets, resulting in lower year-over-year sales of both MRS-enabled SQ3000 3D AOI systems and legacy inspection systems. The revenue increase in the nine months ended September 30, 2019 resulted from higher sales of 3D MRS-enabled ~~SQ3000 3D~~SQ30003D AOI systems ~~including the new~~ SQ~~3000~~™ 3~~D CMM system,~~ and ~~$1.6 million of revenue from~~ sales of ~~MX600~~MX600 memory module inspection systems. Sales of ~~SQ3000~~MRS-enabled SQ3000 3D AOI systems increased by ~~$274,000~~$1.2 million or ~~12%~~14% to ~~$2.5~~$10.4 million in the nine months ended September 30, 2019, when compared to the nine months ended September 30, 2018. Strong year-over-year sales growth is forecasted for MRS-enabled SQ3000 3D AOI systems in the fourth quarter of 2019, due in part to the competitive advantages offered by our MRS technology. Sales of MX600 memory module inspection systems were approximately $600,000 and $3.3 million in the three and ninemonths ended ~~March 31,~~September 30, 2019, ~~when compared to~~respectively. There were no sales of MX600 memory module inspection systems in the three and ninemonths ended ~~March 31,~~September 30, 2018.Sales of legacy 2D2D AOI and solder paste inspection systems were lower in the three and nine months ended ~~March 31,~~September 30, 2019, when compared to the three and nine months ended ~~March 31, 2018. There were no~~September 30, 2018. Despite the anticipated sales growth for MRS-enabled SQ3000 AOI systems, slow sales of ~~MX600 memory module inspection systems~~legacy products are expected to result in ~~the three months ended March 31, 2018. Consistent with the customer's current installation schedule, we expect to recognize $1.1 million of MX600~~lower year-over-year sales ~~in the second quarter of 2019. Sales~~ of inspection and metrology systems ~~are forecasted to grow strongly~~ in ~~the second quarter of 2019, driven by strong demand for SQ3000 3D AOI systems and the MX600 sales described above.~~ this year's fourth quarter.

We believe a growing number of companies are transitioning from 2D AOI to 3D AOI systems to meet the increasingly demanding product inspection requirements in the semiconductor, electronics and industrial markets. As a result, demand for 3D3D AOI systems is growing rapidly. We anticipate sales of 3D MRS enabled ~~SQ3000 3D~~SQ30003D AOI systems, including the new SQ3000™ 3D CMM system, will represent an increasing percentage of our total inspection and metrology system sales in the future. Also, we expect that the competitive advantages of our unique 3D MRS technology will provide us with an opportunity to capture significant market share in the 3D AOI systems market.

Export revenues totaled $~~10.6~~9.6 million or 7177% of our total revenues in the three months ended ~~March 31,~~September 30, 2019, compared to $~~10.2~~11.9 million or 7271% of total revenues in the three months ended ~~March 31,~~September 30, 2018. Export revenues totaled $31.1 million or 73% of our total revenues in the nine months ended September 30, 2019compared to $33.4 million or 72% of total revenues in the nine months ended September 30, 2018. Export revenue as a percentage of total revenue was higher in the three months ended September 30, 2019, when compared to the three months ended September 30, 2018, primarily due to lower sales of general industrial metrology systems and services, which are primarily sold in the United States. There was no significant change in export revenues as a percentage of total revenues in the nine months ended September 30, 2019, when compared to the nine months ended September 30, 2018.

Cost of Revenues and Gross Margin

Cost of revenues decreased by $2.4 million or 26% to $6.9million in the three months ended ~~March 31,~~September 30, 2019, from $9.2 million in the three months ended September 30, 2018. Cost of revenues decreased by $2.4 million or 10% to $23.3million in the nine months ended September 30, 2019, from $25.7 million in the nine months ended September 30, 2018. The decrease in cost of revenues in both periods was due to a corresponding decrease in revenues. In the three and nine months ended September 30, 2019, revenues decreased by 26% and 9%, respectively.

Total gross margin as a percentage of revenues was 44% in the three months ended September 30, 2019, compared to 45% in the three months ended September 30, 2018. Total gross margin as a percentage of revenues was 45% in both the nine months ended September 30, 2019 and the nine months ended September 30, 2018. The small reduction in gross margin percentage in the three months ended September 30, 2019 was due to incremental expenses for inventory obsolescence and warranty costs, offset in part by a more favorable product mix. Sales of higher margin semiconductor sensors represented a larger percentage of our total revenues in the three months ended September 30, 2019, when compared to the three months ended ~~March 31,~~September 30, 2018.

~~Cost of Revenues and Gross Margin~~

~~Cost of revenues~~ ~~increased~~ ~~by $49,000~~ or 1% Due to $~~8.0million in the~~ ~~three months ended March 31, 2019, from $7.9~~ ~~million in the~~ ~~three months ended March 31, 2018. The slight increase~~ ~~in cost~~a more favorable product mix, total gross margins as a percentage of revenues in the ~~three months ended March 31, 2019~~ was due to the corresponding 6% increase in revenues, mostly offset by a change in product mix, as sales of lower cost, higher gross margin products constituted a greater percentage of our total revenues. ~~Items included in cost of revenues that fluctuate with the level of sales include raw materials, direct labor and factory overhead costs.~~

~~Total gross margin as a percentage of revenue was~~ 47% ~~in the~~ ~~three~~ ~~months ended~~ ~~March 31, 2019, compared to~~ 44~~% in the~~ ~~three~~ ~~months ended~~ ~~March 31, 2018~~. The increase in gross margin percentage was due to sales of higher margin semiconductor sensors representing a greater percentage of our total revenues. In addition, there were fewer sales of 2D and 3D inspection systems in the broader SMT market, which tend to have lower gross margins due to competitive pricing pressures. We anticipate that our gross margin percentage in the secondfourth quarter of 2019 ~~will~~ are expected to be ~~down slightly~~higher on a year-over-year basis ~~from the second quarter of 2018, principally due~~and higher to ~~expected changes in product mix, including more sales of inspection systems in the lower margin general purpose SMT market and an x-ray system sale.~~a lesser extent on a sequential quarterly basis.

Our markets are highly price competitive, particularly insegments of the ~~electronic assembly and~~ SMT ~~markets.~~market that have less demanding inspection requirements. As a result, we have experienced ~~ongoing~~continual pressure on our gross margins. We compensate for ~~this~~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 MRS-enabled SQ30003D AOI ~~systems~~,products, 3D MRS sensors and WaferSense sensor products, have, or are expected to have, more favorable gross margins than many of our existing products. O~~ur next generation 3D MRS-enabled sensor and system products are being designed for more~~ complex and demanding inspection applications in the SMT and semiconductor markets. Sales prices and gross profit margins of products for these applications tend to be higher than margins for products sold in the broader SMT market.

Operating Expenses

Research and development ("R&D") expenses were $~~2.3~~2.4 million or ~~15%~~19% of revenues in the three months ended ~~March 31,~~September 30, 2019, compared to $2.2 million or 1513% of revenues in the three months ended ~~March 31,~~September 30, 2018. R&D expenses were $7.0 million or 16% of revenues in the nine months ended September 30, 2019, compared to $6.6 million or 14% of revenues in the nine months ended September 30, 2018. The ~~increase~~increases in R&D expenses ~~was~~in both the three and nine months ended September 30, 2019 were the result of higher compensation costs ~~due to hiring of~~for new and existing R&D employees, and ~~pay increases~~expenses related to development of our next generation 3D NanoResolution MRS sensor, offset in part by lower bonus accruals for ~~existing~~ employees working in our R&D department. Current R&D expenditures are primarily focused on continued development of our 3D MRS technology, including 3D sensor subsystems and ~~commercialization of our~~the next generation ~~ultra-high resolution 3-micron pixel~~NanoResolution sensor, and ~~ongoing~~ development of new applications and products for ~~our WaferSense product line.~~3D wafer level, advanced packaging and memory module inspection.

2023

Selling, general and administrative ("S,G&A") expenses were $~~4.2~~3.9 million or ~~28%~~31% of revenues in the three months ended ~~March 31,~~September 30, 2019, compared to $~~4.4~~3.9 million or 3124% of revenues in the three months ended ~~March 31,~~September 30, 2018. S,G&A expenses were $11.8 million or 28% of revenues in the nine months ended September 30, 2019, compared to $12.4 million or 27% of revenues in the nine months ended September 30, 2018. The ~~decrease~~increases in S,G&A expenses ~~was due to~~as a percentage of revenues reflected our lower revenue levels. However, S,G&A expenses in the three and nine months ended September 30, 2019 were favorably impacted by lower compensation costs resulting from ~~voluntary~~ employee departures ~~a small reduction due to foreign currency impacts~~ and ~~a small~~lower bonus accruals and sales commissions resulting from the declines in our revenues and financial performance. In addition, S,G&A expenses in the three and nine months ended September 30, 2018 were decreased by an approximately $200,000 reduction in our allowance for doubtful ~~accounts.~~accounts, resulting from collection of a receivable that had been fully reserved for in a prior period.

Total operating expenses in the ~~second~~fourth quarter of 2019 are expected to be ~~up slightly~~virtually unchanged on both a year-over-year ~~basis when compared to the second quarter of 2018.~~and quarterly sequential basis.

Interest Income and Other

Interest ~~income~~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 and China. ~~We recognized losses from foreign currency transactions of $18,000~~ inIn thethree months ended ~~March 31,~~September 30, 2019~~, compared to~~ and 2018, we recognized gains from foreign currency transactions of $71,000 and $~~43,000~~37,000 in respectively. In the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018, w.e recognized gains from foreign currency transactions of $45,000 and $102,000, respectively.

Income Taxes

We recorded an income tax benefit of $234,000 in the three months ended September 30, 2019, compared to income tax expense of $297,000 in the three months ended September 30, 2018.We recorded income tax expense of $~~134,000~~92,000 in the~~three~~ nine months ended ~~March 31,~~September 30, 2019, compared to income tax expense of $444,000 in the nine months ended September 30, 2018. Our income tax benefit in the three months ended September 30, 2019 reflectedan effectivetax rate of approximately 40%, compared to an ~~income~~effective tax ~~benefit~~rate of $~~83,000~~approximately 22% in thethree months ended ~~March 31,~~September 30, 2018.Our income tax expense in the ~~three~~nine months ended ~~March 31,~~September 30, 2019reflectedan effective ~~income~~tax rate of approximately 13%, compared to an effective tax rate of approximately 21%~~, which included $9,000~~ in thenine months ended September 30, 2018. Fluctuations in our effective tax rate in both the three and nine months ended September 30, 2019 are related to a non-cash income benefit resulting from the completion of an audit of our income taxes in the Singapore tax jurisdiction. In the nine months ended September 30, 2019 and 2018, excess tax benefits ~~from~~related to employee ~~share-based payments. Our income tax benefit in the~~ ~~three months ended March 31, 2018~~share based payments totaled $11,000 and $70,000, respectively. ~~reflected an~~On a recurring basis, our effective income tax rate of ~~approximately~~ 32~~%, which included $35,000 of excess tax benefits from employee share-based payments.~~ ~~Our effective income tax rate in the three months ended March 31, 2019 and the three months ended March 31, 2018 was~~is significantly impacted by Global Intangible Low Tax Income ~~(GILTI),~~and U.S. federal R&D tax ~~credits and excess tax benefits from employee share-based payments.~~credits.

We have significant deferred tax assets as a result of temporary differences between taxable income on our tax returns and U.S. GAAP income, research and development tax credit carry forwards and federal, state and foreign 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 therealizabilityof 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 therealizabilityof 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 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 threeyears in each of the tax jurisdictions in which we operate, our financial performance in recent quarters, statutory ~~carry forward~~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 deferred tax assets was not required.

The Inland Revenue Authority of Singapore is reviewing our 2016 and 2015 income tax returns. We anticipate that the outcome of these audits will not have a significant impact on our financial position or results of operations.Backlog

~~Backlog~~

Backlog totaled ~~$11.6~~$14.4 million at ~~March 31,~~September 30, 2019, ~~a decrease~~an increase from ~~$13.6~~$13.6 million at December 31, 2018, but down from $19.7 ~~and $12.1~~ million at ~~March 31,~~September 30, 2018. Our products are typically shipped two weeks to two months after receipt of an order. Sales of some inspection 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. Our backlog at any time may vary significantly based on the timing of orders from OEM customers. In some instances, our OEM customers may place orders for shipment of products covering periods of nine months or longer. Accordingly, backlog may not be an accurate indicator of performance in the future.

2124

Liquidity and Capital Resources

Our cash and cash equivalents ~~increased~~decreased by $~~67,000~~$1.1 million in the ~~three~~nine months ended ~~March 31,~~September 30, 2019. ~~Proceeds~~Cash provided by operating activities of ~~$440,000 from operating activities,~~$916,000 and proceeds of $~~1.1~~6.1 million from maturities of marketable securities ~~and proceeds of $59,000~~ ~~from the exercise of stock options added to our cash and cash equivalents. These sources of cash~~ were ~~mostly~~more than offset by purchases of marketable securities totaling $~~1.3~~7.1 million and purchases of fixed ~~asset~~assets and ~~payment of~~ capitalized patent costs totaling ~~$215,000.~~$1.2 million. 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 approximately $400,000 to $25.7~~ ~~million as of~~ ~~March 31, 2019~~ ~~from~~were $25.3 million as of both September 30, 2019 and December 31, 2018.

Operating activities provided ~~$440,000~~$916,000 of cash in the ~~three~~nine months ended ~~March 31,~~September 30, 2019. The amount of cash provided by operations was favorably impacted by ~~our~~ net income of ~~$495,000~~$606,000. Net income was affected by non-cash expenses totaling $2.8~~1.0~~ ~~milli~~onmillion for depreciation and amortization, provision for doubtful accounts, deferred income taxes, non-cash losses 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 in the ~~three~~nine months ended ~~March 31,~~September 30, 2019, included a decrease in accounts receivable of ~~$2.9~~$2.6 million, a decrease in other assets of ~~$445,000~~$235,000 and an increase in ~~advance customer payments~~operating lease assets and liabilities of ~~$207,000.~~ $482,000. Changes in operating assets and liabilities using cash in the ~~three~~nine months ended ~~March 31,~~September 30, 2019, included an increase in inventories of ~~$1.6~~$1.1 million,a decrease in accounts payable of ~~$2.4~~$3.5 million and a decrease in accrued expenses of ~~$600,000~~$1.1 million. Accounts receivable decreased due to lower sales in the ~~first~~third quarter of 2019 ~~when~~, compared to the fourth quarter of ~~2018.~~ 2018, offset in part by slower collection of accounts receivable. Sales of inspection and metrology systems, which typically have longer collection periods than sales of our sensor products, have constituted a larger portion of our revenues in recent quarters. Other assets decreased because deposits previously paid to a key supplier of materials were used to purchase inventories. ~~Advance customer payments increased due to receipt~~The increase in operating lease assets and liabilities resulted from lease incentives, including free rent and facility operating costs, and the effects of ~~a customer deposit for a metrology product we expect to ship in the second quarter of 2019.~~straight-line rent expense. Inventories increased ~~because materials were purchased to support higher sales levels that were originally anticipated for the first quarter of 2019. Sales were lower than initially anticipated~~ due to sluggish conditions in the global SMT and semiconductor ~~markets.~~capital equipment markets, with a corresponding negative impact on sales, causing inventory levels to rise. ~~The purchase of additional materials for MX600 memory module inspection systems also contributed to the increase in inventories.~~ Accounts payable decreased in the third quarter of 2019 due to the timing of inventory purchases, with more raw materials being acquired in the fourth quarter of 2018 and the ~~early part of the~~ first ~~quarter~~half of 2019. These materials were subsequently paid for ~~in the first quarter of~~prior to September 30, 2019, resulting in ~~the~~a lower accounts payable balance. Accrued expenses decreased due to lower compensation accruals at September 30, 2019, resulting from payment of 2018 bonuses in early 2019, and payment of employee wages near the ~~first quarter~~end of ~~2019.~~the third quarter.

Investing activities used ~~$426,000~~$2.1 million of cash in the ~~three~~nine months ended ~~March 31,~~September 30, 2019. Changes in the level of investment in marketable securities, resulting from purchases ~~sales~~ and maturities of those securities, used $~~211,000~~936,000 of cash in the ~~three~~nine months ended ~~March 31,~~September 30, 2019. We used ~~$215,000~~$1.2 million of cash in the ~~three~~nine months ended ~~March 31,~~September 30, 2019 for the purchase of fixed assets and capitalized patent costs.

Financing activities provided $23,000 of cash in the nine months ended September 30, 2019. Proceeds from the exercise of stock options and share purchases under our employee stock purchase plan provided $~~59,000~~$376,000 of cash in the ~~three~~nine months ended ~~March 31,~~September 30, 2019. In July 2019, our Board of Directors authorized a $3.0. million share repurchase program through June 30, 2020. Share repurchases under this program used $353,000 of cash in the nine months ended September 30, 2019.

At ~~March 31,~~September 30, 2019, 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.

~~Our cash, cash equivalents and marketable securities totaled $25.7~~ ~~million at~~ ~~March 31, 2019~~. 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.

2225

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4 – CONTROLS AND PROCEDURES

a. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.

b. There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

2326

PART II. OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

None.

ITEM 1A – RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, which could materially affect our business, financial condition or future results.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

~~None.~~In July 2019, our Board authorized the repurchase of up to $3.0 million of shares of our common stock. The common stock will be acquired from time to time in open market transactions, block purchases and other transactions complying with Rule 10b-18 of the Securities and Exchange Commission.

Company Repurchase of Equity Securities

Period	(a) Total Number of Shares Purchased		(b) Average Price Paid per Share	(c) Total Number of Shares Purchased as Part of Publicly Announced Program		(d) Approximate Value of Shares that May Yet Be Purchased Under the Program
July 1, 2019 to July 31, 2019	8,575	$	13.61	8,575	$	2,883,316

August 1, 2019 to August 31, 2019	17,410	$	13.60	17,410	$	2,646,592

September 1, 2019 to September 30, 2019	—	$	—	—	$	2,646,592

Total	25,985	$	13.60	25,985	$	2,646,592

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 – MINE SAFETY DISCLOSURES

None.

ITEM 5 – OTHER INFORMATION

None.

ITEM 6 – EXHIBITS


31.1:		Certification of Chief Executive Officer pursuant to Rule 15d-14(a) (17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes Oxley Act of 2002
31.2:		Certification of Chief Financial Officer pursuant to Rule 15d-14(a) (17 CFR 240.15d-14(a)) and Section 302 of the Sarbanes Oxley Act of 2002
32:		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes Oxley Act of 2002
101:		Financial statements formatted in Inline Extensible Business Reporting Language: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated ~~Statement~~Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statements of Cash Flows and (v) the Notes to the Interim Condensed Consolidated Financial Statements

2428

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	CYBEROPTICS CORPORATION

	/s/ Subodh Kulkarni
	By Subodh Kulkarni, President and Chief Executive Officer
	(Principal Executive Officer and Duly Authorized Officer)

	/s/ Jeffrey A. Bertelsen
	By Jeffrey A. Bertelsen, Vice President, Chief Financial Officer and Chief Operating Officer
	(Principal Accounting Officer and Duly Authorized Officer)

Dated: ~~May 8,~~November 6, 2019

2529


(In thousands)	September 30, 2019		December 31, 2018
Contract assets, included in other current assets	$	6	$	—
Contract liabilities - advance customer payments	$	427	$	366
Contract liabilities - deferred warranty revenue	$	235	$	218


	Options Outstanding		Weighted Average Exercise Price Per Share		Options Outstanding		Weighted Average Exercise Price Per Share
Outstanding, December 31, 2018	523,042		$	11.48	523,042		$	11.48
Granted	—		—		—		—
Exercised	(5,850	)	9.92		(21,050	)	8.23
Expired	(5,000	)	8.50		(5,750	)	10.83
Forfeited	(7,350	)	16.67		(7,350	)	16.67
Outstanding, March 31, 2019	504,842		$	11.45
Outstanding, September 30, 2019					488,892		$	11.55

Exercisable, March 31, 2019	350,718		$	9.40
Exercisable, September 30, 2019					334,768		$	9.45


Non-vested restricted stock units and restricted shares	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Non-vested at December 31, 2018	56,411		$	17.59	56,411		$	17.59
Granted	—		—		8,000		17.26
Vested	(2,000	)	16.25		(6,000	)	16.59
Forfeited	(875	)	16.19		(875	)	16.19
Non-vested at March 31, 2019	53,536		$	17.66
Non-vested at September 30, 2019					57,536		$	17.67


(In thousands)	March 31, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Raw materials and purchased parts	$	9,114	$	8,821	$	10,352	$	8,821
Work in process	2,489		2,446		1,426		2,446
Finished goods	5,979		4,896		4,582		4,896
Total inventories	$	17,582	$	16,163	$	16,360	$	16,163


(In thousands)	March 31, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Wages and benefits	$	1,174	$	2,166	$	1,038	$	2,166
Warranty liability	795		758		843		758
Income tax payable	459		393
Income taxes payable					257		393
Other	215		251		212		251
	$	2,643	$	3,568	$	2,350	$	3,568


	Nine Months Ended September 30, 2019				Nine Months Ended September 30, 2018
(In thousands except percentages)	Revenues		Percent of Revenues		Revenues		Percent of Revenues
Revenue recognized over time	$	1,041	2	%	$	3,262	7	%
Revenue recognized at a point in time		41,370	98	%		43,395	93	%
	$	42,411	100	%	$	46,657	100	%


	December 31, 2018
(In thousands)	Cost		Unrealized Gains		Unrealized Losses			Fair Value
Short-Term
U.S. government and agency obligations	$	3,377	$	—	$	(20	)	$	3,357
Corporate debt securities and certificates of deposit	1,787		3		(5		)	1,785
Asset backed securities	633		—		(4		)	629
Marketable securities – short-term	$	5,797	$	3	$	(29	)	$	5,771
Long-Term
U.S. government and agency obligations	$	6,114	$	10	$	(23	)	$	6,101
Corporate debt securities and certificates of deposit	754		1		(3		)	752
Asset backed securities	3,422		2		(15		)	3,409
Equity security	42		18		—			60
Marketable securities – long-term	$	10,332	$	31	$	(41	)	$	10,322

	Common Stock					Accumulated Other Comprehensive Loss			Retained Earnings			Total Stockholders’ Equity
(In thousands)	Shares		Amount			Accumulated Other Comprehensive Loss			Retained Earnings			Total Stockholders’ Equity
Balance, June 30, 2019	7,115		$	36,189		$	(1,518	)	$	23,256		$	57,927
Exercise of stock options	15			114			—			—			114
Share-based compensation	—			244			—			—			244
Issuance of common stock under Employee Stock Purchase Plan	18			203			—			—			203
Repurchase of common stock	(26	)		(353	)		—			—			(353	)
Other comprehensive loss, net of tax	—			—			(268	)		—			(268	)
Net loss	—			—			—			(353	)		(353	)
Balance, September 30, 2019	7,122		$	36,397		$	(1,786	)	$	22,903		$	57,514

	Common Stock			Accumulated Other Comprehensive Loss			Retained Earnings			Total Stockholders’ Equity
(In thousands)	Shares	Amount		Accumulated Other Comprehensive Loss			Retained Earnings			Total Stockholders’ Equity
Balance December 31, 2017	6,980	$	34,080	$	(1,409	)	$	19,611		$	52,282
Increase related to adoption of ASU 2016-01	—		—		(44	)		44			—
Decrease related to adoption of ASU 2014-09	—		—		—			(218	)		(218	)
Exercise of stock options, vesting of restricted stock units and grants of restricted shares, net of shares exchanged as payment	26		182		—			—			182
Stock-based compensation	—		259		—			—			259
Other comprehensive income, net of tax	—		—		189			—			189
Net loss	—		—		—			(173	)		(173	)
Balance, March 31, 2018	7,006	$	34,521	$	(1,264	)	$	19,264		$	52,521