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 ~~June 30, 2019~~March 31, 2020

o TRANSITION PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT

For the transition period from ______ to ______

	COMMISSION FILE NO. (0-16577)

CYBEROPTICS CORPORATION
(Exact name of registrant as specified in its charter)


Minnesota		41-1472057
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5900 Golden Hills Drive
MINNEAPOLIS, MINNESOTA		55416
(Address of principal executive offices)		(Zip Code)

	(763) 542-5000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	CYBE	NASDAQ Stock Market LLC

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

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

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

Large Accelerated Filer	☐	Accelerated Filer	☑☐
Non-Accelerated Filer	☐ ☑	Smaller Reporting Company	☑
		Emerging Growth Company	☐

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. At ~~July 31, 2019~~,April 30, 2020, there were ~~7,139,081~~7,177,154 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)	June 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
ASSETS
Cash and cash equivalents	$	9,664		$	9,248		$	6,069		$	5,836
Marketable securities	8,245			5,771			7,593			8,295
Accounts receivable, less allowances of $300 at June 30, 2019 and $314 at December 31, 2018	15,553			15,859
Accounts receivable, less allowances of $299 at March 31, 2020 and $322 at December 31, 2019							14,327			16,059
Inventories	17,563			16,163			17,050			15,580
Prepaid expenses							569			559
Other current assets	1,437			2,096			1,060			1,020
Total current assets	52,462			49,137			46,668			47,349

Marketable securities, long-term	7,893			10,322			15,187			12,168
Equipment and leasehold improvements, net	3,778			2,861			3,063			3,341
Intangible assets, net	310			333			280			310
Goodwill	1,366			1,366			1,366			1,366
Right-of-use assets (operating leases)	2,105			—			2,850			2,111
Other assets	252			259
Trade notes receivable, long-term							876			962
Deferred tax assets	5,189			5,422			4,892			4,992
Total assets	$	73,355		$	69,700		$	75,182		$	72,599

LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	7,670		$	8,513		$	8,192		$	7,023
Advance customer payments	818			636			548			499
Accrued expenses	2,877			3,568			2,559			2,572
Current operating lease liabilities	410			—			736			688
Total current liabilities	11,775			12,717			12,035			10,782

Other liabilities	113			629			204			202
Long-term operating lease liabilities	3,397			—			3,758			3,141
Reserve for income taxes	143			143			150			150
Total liabilities	15,428			13,489			16,147			14,275

Commitments and contingencies

Stockholders’ equity:
Preferred stock, no par value, 5,000,000 shares authorized, none outstanding	—			—
Common stock, no par value, 25,000,000 shares authorized, 7,114,675 shares issued and outstanding at June 30, 2019 and 7,100,825 shares issued and outstanding at December 31, 2018	36,189			35,637
Preferred stock, no par value, 5,000,000 shares authorized, NaN outstanding							—			—
Common stock, no par value, 25,000,000 shares authorized, 7,164,654 shares issued and outstanding at March 31, 2020 and 7,154,591 shares issued and outstanding at December 31, 2019							37,016			36,659
Accumulated other comprehensive loss	(1,518		)	(1,690		)	(1,896		)	(1,406		)
Retained earnings	23,256			22,264			23,915			23,071
Total stockholders’ equity	57,927			56,211			59,035			58,324
Total liabilities and stockholders’ equity	$	73,355		$	69,700		$	75,182		$	72,599

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

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

CYBEROPTICS CORPORATION

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
(In thousands, except per share amounts)	2019		2018		2019		2018		2020		2019
Revenues	$	15,044	$	15,854	$	30,020	$	29,974	$	16,429	$	14,976
Cost of revenues		8,455		8,590		16,405		16,491		9,146		7,950

Gross margin		6,589		7,264		13,615		13,483		7,283		7,026

Research and development expenses		2,249		2,243		4,542		4,423		2,395		2,293
Selling, general and administrative expenses		3,761		4,146		7,924		8,503		4,159		4,163

Income from operations		579		875		1,149		557		729		570

Interest income and other		77		95		136		157		264		59

Income before income taxes		656		970		1,285		714		993		629

Income tax expense		192		230		326		147		149		134

Net income	$	464	$	740	$	959	$	567	$	844	$	495

Net income per share – Basic	$	0.07	$	0.11	$	0.14	$	0.08	$	0.12	$	0.07
Net income per share – Diluted	$	0.06	$	0.10	$	0.13	$	0.08	$	0.11	$	0.07

Weighted average shares outstanding – Basic		7,106		7,010		7,103		6,998		7,157		7,100
Weighted average shares outstanding – Diluted		7,296		7,242		7,309		7,114		7,367		7,322

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

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CYBEROPTICS CORPORATION

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,
(In thousands)

2019
2018

2019

2018
Net income

$ 464

$ 740

$
959

$
567

Other comprehensive income, before tax:

Foreign currency translation adjustments

(17 )

(422 )

70

(202
)

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

Unrealized gains (losses)

70

4

128

(36
)
Reclassification adjustment for gains included in net income

—

—

—

—

Total unrealized gains (losses) on available-for-sale securities

70

4

128

(36
)

Other comprehensive income (loss) before income taxes

53

(418 )

198

(238
)
Income tax (provision) benefit

(14 )

(1 )

(26
)

8
Other comprehensive income (loss) after income taxes

39

(419 )

172

(230
)
Total comprehensive income

$ 503

$ 321
$
1,131

$
337


	Three Months Ended March 31,
(In thousands)	2020			2019
Net income	$	844		$	495

Other comprehensive income (loss) before income taxes:
Foreign currency translation adjustments		(600	)		87

Unrealized gains on available-for-sale securities		140			58

Total other comprehensive income (loss) before income taxes		(460	)		145

Income tax provision		(30	)		(12	)

Total other comprehensive income (loss) after income taxes		(490	)		133

Total comprehensive income	$	354		$	628

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

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

CYBEROPTICS CORPORATION

(Unaudited)


	Six Months Ended June 30,						Three Months Ended March 31,
(In thousands)	2019			2018			2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	959		$	567		$	844		$	495
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	1,358			1,224			664			663
Provision (recovery) for doubtful accounts	(14		)	25
Non-cash operating lease expense							137			236
Recovery for doubtful accounts							(23		)	(44		)
Deferred taxes	201			29			64			71
Foreign currency transaction (gains) losses	29			(113		)
Foreign currency transaction losses (gains)							(381		)	70
Share-based compensation	493			484			272			244
Unrealized loss on available-for-sale equity security	5			37			18			1
Changes in operating assets and liabilities:
Accounts receivable	320			(2,034		)	1,841			2,866
Inventories	(1,881		)	(821		)	(2,086		)	(1,625		)
Other assets	648			(363		)
Prepaid expenses and other assets							(111		)	445
Accounts payable	(865		)	2,088			1,348			(2,353		)
Advance customer payments	186			321
Advance customer payments and other							51			207
Accrued expenses	(561		)	556			14			(802		)
Operating lease assets and liabilities	397			—
Operating lease liabilities							(200		)	(34		)
Net cash provided by operating activities	1,275			2,000			2,452			440

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of available-for-sale marketable securities	2,860			3,969			3,106			1,052
Proceeds from sales of available-for-sale marketable securities	—			70
Purchases of available-for-sale marketable securities	(2,758		)	(4,479		)	(5,294		)	(1,263		)
Additions to equipment and leasehold improvements	(957		)	(642		)	(129		)	(183		)
Additions to patents	(61		)	(36		)	(17		)	(32		)
Net cash used in investing activities	(916		)	(1,118		)	(2,334		)	(426		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options	59			251			85			59
Net cash provided by financing activities	59			251			85			59

Effects of exchange rate changes on cash and cash equivalents	(2		)	9			30			(6		)

Net increase in cash and cash equivalents	416			1,142			233			67

Cash and cash equivalents – beginning of period	9,248			6,944			5,836			9,248
Cash and cash equivalents – end of period	$	9,664		$	8,086		$	6,069		$	9,315

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

3.4. 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 in the~~ ~~three and six~~ ~~months ended~~ ~~June 30, 2019~~ ~~and the~~ ~~three and six~~ ~~months ended~~ ~~June 30, 2018~~:obligations:

Three Months Ended June 30, 2019
Three Months Ended June 30, 2018
(In thousands except percentages)

Revenues
Percent of Revenues
Revenues
Percent of Revenues
Revenue recognized over time

$ 292
2
%
$
1,127
7
%
Revenue recognized at a point in time

14,752
98 %
14,727
93
%

$ 15,044
100 %
$
15,854
100
%


	Six Months Ended June 30, 2019				Six Months Ended June 30, 2018				Three Months Ended March 31, 2020				Three Months Ended March 31, 2019
(In thousands except percentages)	Revenues		Percent of Revenues		Revenues		Percent of Revenues		Revenues		Percent of Revenues		Revenues		Percent of Revenues
Revenue recognized over time	$	638	2	%	$	2,021	7	%	$	193	1	%	$	346	2	%
Revenue recognized at a point in time		29,382	98	%		27,953	93	%		16,236	99	%		14,630	98	%
	$	30,020	100	%	$	29,974	100	%	$	16,429	100	%	$	14,976	100	%

See Note 1011 for additional information regarding disaggregation of revenue.

Contract Balances

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

The following summarizes our contract assets and contract liabilities:


(In thousands)	June 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Contract assets, included in other current assets	$	6	$	—	$	27	$	2
Contract liabilities, included in advance customer payments/other liabilities	$	667	$	366
Contract liabilities - advance customer payments					$	406	$	389
Contract liabilities - deferred warranty revenue					$	309	$	275

Changes in contract assets in the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 resulted from unbilled amounts under sensor product arrangements and longer duration 3D3D 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 89 for changes in contractual obligations related to deferred warranty revenue. Unsatisfied performance obligations are generally expected to be recognized as revenue over the next one to three years. There were no0 impairment losses for contract assets in the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 or the ~~six~~three months ended ~~June 30,~~ ~~2018~~.March 31, 2019.

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

Three Months Ended June 30,
Six Months Ended June 30,
(In thousands)
2019
2018

2019

2018

Amounts reclassified from beginning contract liabilities to revenue

$ 443

$ 166

$
216

$
223

Amounts reclassified from deferred warranty revenue

110

91

224

211

Total
$ 553

$ 257

$ 440

$ 434


	Three Months Ended March 31,
(In thousands)	2020		2019
Amounts reclassified from beginning contract liabilities to revenue	$	76	$	30
Amounts reclassified from deferred warranty revenue		100		114
Total	$	176	$	144

4.5. MARKETABLE SECURITIES:

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


	June 30, 2019									March 31, 2020
(In thousands)	Cost		Unrealized Gains		Unrealized Losses			Fair Value		Cost		Unrealized Gains		Unrealized Losses			Fair Value
Short-Term
U.S. government and agency obligations	$	5,293	$	14	$	(6	)	$	5,301	$	5,386	$	60	$	—		$	5,446
Corporate debt securities and certificates of deposit	1,466		2		(1		)	1,467		1,170		2		(1		)	1,171
Asset backed securities	1,475		3		(1		)	1,477		975		1		—			976
Marketable securities – short-term	$	8,234	$	19	$	(8	)	$	8,245	$	7,531	$	63	$	(1	)	$	7,593
Long-Term
U.S. government and agency obligations	$	4,109	$	38	$	(1	)	$	4,146	$	7,349	$	141	$	—		$	7,490
Corporate debt securities and certificates of deposit	1,243		8		—			1,251		4,760		21		(12		)	4,769
Asset backed securities	2,424		20		(2		)	2,442		2,886		17		(5		)	2,898
Equity security	42		12		—			54		42		—		(12		)	30
Marketable securities – long-term	$	7,818	$	78	$	(3	)	$	7,893	$	15,037	$	179	$	(29	)	$	15,187

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
June 30, 2019

U.S. government and agency obligations $ —
$ — $ 3,286 $ (7 )
Corporate debt securities and certificates of deposit —
— 534 (1 )
Asset backed securities —
— 1,356
(3 )
Marketable securities $ —
$ — $ 5,176 $ (11 )
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, 2019
(In thousands)	Cost		Unrealized Gains		Unrealized Losses			Fair Value
Short-Term
U.S. government and agency obligations	$	5,766	$	22	$	—		$	5,788
Corporate debt securities and certificates of deposit	1,085		1		—			1,086
Asset backed securities	1,417		4		—			1,421
Marketable securities – short-term	$	8,268	$	27	$	—		$	8,295
Long-Term
U.S. government and agency obligations	$	6,524	$	30	$	(1	)	$	6,553
Corporate debt securities and certificates of deposit	3,004		14		—			3,018
Asset backed securities	2,535		15		(1		)	2,549
Equity security	42		6		—			48
Marketable securities – long-term	$	12,105	$	65	$	(2	)	$	12,168

~~The~~Our investments in marketable debt securities ~~in which we have invested~~ all have maturities of less than five ~~years.~~years. Net pre-tax unrealized gains for marketable debt securities of $224,000 ~~$74,000~~ at March 31, 2020~~June 30, 2019~~ and ~~net pre-tax losses for marketable debt securities of $54,000~~$84,000 at December 31, ~~2018~~2019 have been recorded as a component of accumulated other comprehensive loss in stockholders’ equity. We have determined that the net pre-tax unrealized gains and losses for marketable debt securities at March 31, 2020~~June 30, 2019~~ and December 31, ~~2018~~2019 were caused by fluctuations in interest rates and are temporary in nature. We review our marketable debt securities to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which ~~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~~three~~ or ~~six~~ months ended ~~June 30, 2019~~March 31, 2020 or the three months ended~~June 30, 2018~~ March 31, 2019. See Note 6 for additional information regarding the fair value of our investments in marketable securities. .

~~We received proceeds from sales of~~

Investments in marketable securities ofin an unrealized loss position are as follows:~~$70,000~~ ~~in the~~ ~~six months ended June 30, 2018~~. No~~gains or losses were recognized on these sales.~~


	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, 2020
Corporate debt securities and certificates of deposit	$	2,045	$	(13	)	$	—	$	—
Asset backed securities	1,140		(5		)	—		—
Marketable securities	$	3,185	$	(18	)	$	—	$	—
December 31, 2019
U.S. government and agency obligations	$	149	$	(1	)	$	—	$	—
Asset backed securities	684		(1		)	—		—
Marketable securities	$	833	$	(2	)	$	—	$	—

Investments in marketable securities classified as cash equivalents ~~of $5.3~~totaled $2.0 million at ~~June 30, 2019~~March 31, 2020 and $~~2.5~~2.6 million at December 31, ~~2018~~2019 and consist of corporate debt securities and certificates of deposit. There were no0 unrealized gains or losses associated with ~~respect to~~ any of these securities at ~~June 30, 2019~~March 31, 2020 or December 31, ~~2018~~.2019.

Cash and marketable securities held by foreign subsidiaries totaled ~~$329,000~~$853,000 at ~~June 30, 2019~~March 31, 2020 and ~~$362,000~~$327,000 at December 31, ~~2018~~.2019.

56. 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 ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 according to the three-level fair value hierarchy:

Fair Value Measurements at
June 30, 2019 Using
(In thousands)

Balance
June 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

$
9,447

$
—

$
9,447

$
—

Corporate debt securities and certificates of deposit

2,718

—

2,718

—

Asset backed securities

3,919

—

3,919

—

Equity security

54

54

—

—

Total marketable securities

$
16,138

$
54

$
16,084

$
—

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

$
—

	Fair Value Measurements at March 31, 2020 Using
(In thousands)	Balance March 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	$	12,936	$	—	$	12,936	$	—
Corporate debt securities and certificates of deposit	5,940		—		5,940		—
Asset backed securities	3,874		—		3,874		—
Equity security	30		30		—		—
Total marketable securities	$	22,780	$	30	$	22,750	$	—


	Fair Value Measurements at December 31, 2019 Using
(In thousands)	Balance December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Marketable securities:
U.S. government and agency obligations	$	12,341	$	—	$	12,341	$	—
Corporate debt securities and certificates of deposit	4,104		—		4,104		—
Asset backed securities	3,970		—		3,970		—
Equity security	48		48		—		—
Total marketable securities	$	20,463	$	48	$	20,415	$	—

During the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and the year ended December 31, ~~2018~~,2019, we owned no Level 3 securities, and there were no transfers within the three level hierarchy. A significant transfer is recognized when the inputs used to value a security have been changed which merit a transfer between the ~~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~~who obtain ~~the valuations~~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 ~~such as~~included in cash equivalents ~~accounts receivable, other assets, accounts payable, advance customer payments, accrued expenses and other liabilities are approximately equal to~~approximate their related fair values due to ~~their~~the short-term ~~maturities.~~ 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, ~~and~~ goodwill and ~~other~~ 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 no0 re-measurements of non-financial assets to fair value in the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 or the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019. See Note 10 for our analysis regarding potential impairment of goodwill, other long-lived assets and intangibles. .

67. SHARE-BASED COMPENSATION:

We have ~~three~~3 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 ~~June 30, 2019~~March 31, 2020, there were ~~273,764~~185,351 shares of common stock reserved in the aggregate for issuance pursuant to future awards under our Employee Stock Incentive Plan and ~~539,628~~558,654 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~~1 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 ~~June 30, 2019~~,March 31, 2020, there were 52,000 shares of common stock reserved in the aggregate for issuance pursuant to future restricted share grants under our Non-Employee Director Stock Plan and 16,000 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~~4 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 2019 annual meeting, we issued a total of 8,000 shares of our common stock to our non-employee directors, which were restricted as specified in the Non-Employee Director Stock Plan. The shares granted at the 2019 annual meeting had an aggregate fair market value on the date of grant equal to $138,000 (grant date fair value of $17.26 per share). As of ~~June 30, 2019, none~~March 31, 2020, 6,000 of these shares were vested. The aggregate fair value of the ~~outstanding~~2,000 unvested shares based on the closing price of our common stock on ~~June 30, 2019~~March 31, 2020 was ~~$130,000.~~

$34,000.

Stock Option Activity

The following is a summary of stock option activity in the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020:


	Options Outstanding		Weighted Average Exercise Price Per Share		Options Outstanding		Weighted Average Exercise Price Per Share
Outstanding, December 31, 2018	523,042		$	11.48
Outstanding, December 31, 2019					520,513		$	12.25
Granted	—		—		—		—
Exercised	(5,850	)	9.92		(10,063	)	8.44
Expired	(5,750	)	10.83		—		—
Forfeited	(7,350	)	16.67		—		—
Outstanding, June 30, 2019	504,092		$	11.43
Outstanding, March 31, 2020					510,450		$	12.33

Exercisable, June 30, 2019	349,968		$	9.37
Exercisable, March 31, 2020					370,876		$	10.39

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 ~~June 30, 2019~~March 31, 2020, the weighted average remaining contractual term of all outstanding options was ~~3.5~~3.4 years and their aggregate intrinsic value was $2.9 million. At ~~June 30, 2019~~March 31, 2020, the weighted average remaining contractual term of options that were exercisable was ~~2.8~~2.5 years and their aggregate intrinsic value was ~~$2.6~~$2.8 million. The aggregate intrinsic value of stock options exercised was $140,000 in the ~~six~~three months ended ~~June 30, 2019~~ ~~was $57,000.~~March 31, 2020 and $57,000 in the three months ended March 31, 2019. We received proceeds from stock option exercises of $85,000 in the three months ended March 31, 2020 and $59,000 in the ~~six~~three months ended ~~June 30, 2019~~ ~~and $251,000 in the~~ ~~six months ended June 30, 2018. The aggregate fair value of~~March 31, 2019. No stock options ~~that~~ vested in the ~~six~~three months ended ~~June 30, 2019~~ ~~was $5,000.~~March 31, 2020.

Restricted shares are granted under our Non-Employee Director Stock Plan. ~~There were~~ ~~8,000~~ ~~restricted shares granted in the~~ ~~six months ended June 30, 2019~~. Restricted stock units are granted under our Employee Stock Incentive Plan. NoNaN restricted shares or restricted stock units were granted in the ~~six~~three months ended ~~June 30, 2019~~.March 31, 2020. The aggregate fair value of outstanding restricted shares and restricted stock units based on the closing share price of our common stock as of~~June 30, 2019~~March 31, 2020 was ~~$966,000.~~$1.1 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 ~~$77,000~~$45,000 in the~~six~~ three months ended ~~June 30, 2019~~.March 31, 2020 and $43,000 in the three months ended March 31, 2019.

The following is a summary of activity in ~~non-vested~~ restricted shares and restricted stock units in the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020:

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 ~~six~~three months ended ~~June 30, 2019~~.March 31, 2020 or the three months ended March 31, 2019. As of March 31, 2020, ~~As o~~f ~~June 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 statements of operations based on the grant date fair value of the award. We utilize the straight-line method of expense recognition over the award's service period for our graded vesting options. The fair value of stock options has been determined as of the date of grant using the Black-Scholes model. We have classified employee share-based compensation within our statements of operations in the same manner as our cash-based employee compensation costs.

~~Share-based~~Pre-tax share-based compensation expense in the three months ended ~~June 30, 2019~~March 31, 2020 totaled ~~$249,000,~~$272,000, and included ~~$110,000~~$114,000 for stock options, ~~$31,000~~$23,000 for our Employee Stock Purchase Plan, ~~$77,000~~$101,000 for ~~unvested~~ restricted stock units and ~~$31,000~~$34,000 for ~~unvested~~ restricted shares.

Pre-tax share-based compensation expense in the ~~six~~three months ended ~~June 30,~~March 31, 2019 totaled $~~493,000~~,$244,000, and included $~~217,000~~$107,000 for stock options, $~~60,000~~ ~~for our Employee~~ ~~Stock Purchase Plan, $153,000~~ ~~for unvested restricted stock units and $63,000~~ ~~for unvested restricted shares.~~

~~Share-based compensation expense in the~~ ~~three months ended June 30, 2018~~ ~~totaled $225,000, and included $109,000 for stock options, $21,000~~$29,000 for our Employee Stock Purchase Plan, ~~$58,000~~$76,000 for ~~unvested~~ restricted stock units and ~~$37,000~~$32,000 for ~~unvested~~ restricted shares. ~~Share-based compensation expense in the~~ ~~six months ended June 30, 2018~~ ~~totaled $484,000, and included $234,000~~ ~~for stock options, $55,000~~ ~~for our Employee Stock Purchase Plan, $117,000~~ ~~for unvested restricted stock units and $78,000~~ ~~for unvested restricted shares.~~

At ~~June 30, 2019~~March 31, 2020, the total unrecognized compensation cost related to non-vested share-based compensation arrangements was ~~$1.8~~$2.1 million and the related weighted average period over which such cost is expected to be recognized is ~~2.59~~2.79 years.

78. CHANGES IN STOCKHOLDERS’ EQUITY:

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

Three months ended March 31, 2020:

	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, 2019	7,155	$	36,659	$	(1,406	)	$	23,071	$	58,324
Exercise of stock options	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

Three months ended ~~June 30, 2019~~March 31, 2019::

Common Stock
Accumulated
Other Comprehensive
Loss

Retained
Earnings
Total Stockholders’
Equity
(In thousands)
Shares

Amount

Balance, March 31, 2019
7,107

$
35,940

$
(1,557
)

$
22,792

$
57,175

Share issuances for director compensation
8

—

—

—

—
Share-based compensation
—

249

—

—

249

Other comprehensive income, net of tax
—

—

39

—

39
Net income
—

—

—

464

464
Balance, June 30, 2019
7,115

$
36,189

$
(1,518
)

$
23,256

$
57,927

~~Six months ended~~ ~~June 30, 2019~~:

Common Stock
Accumulated
Other Comprehensive
Loss

Retained
Earnings
Total Stockholders’
Equity
(In thousands) Shares Amount
Balance, December 31, 2018 7,101 $ 35,637 $ (1,690 ) $ 22,264 $ 56,211
Increase related to adoption of ASU 2016-02 — — — 33 33
Exercise of stock options, vesting of restricted
stock units and grants of restricted shares, net
of shares exchanged as payment
6 59 — — 59
Share issuances for director compensation
8

—

—

—

—
Share-based compensation — 493 — — 493
Other comprehensive income, net of tax — — 172 — 172
Net income — — — 959 959
Balance, June 30, 2019 7,115 $ 36,189 $ (1,518 ) $ 23,256 $ 57,927

	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, 2018	7,101	$	35,637	$	(1,690	)	$	22,264	$	56,211
Increase related to adoption of ASU 2016-02	—		—		—			33		33
Exercise of stock options	6		59		—			—		59
Share-based compensation	—		244		—			—		244
Other comprehensive income, net of tax	—		—		133			—		133
Net income	—		—		—			495		495
Balance, March 31, 2019	7,107	$	35,940	$	(1,557	)	$	22,792	$	57,175

~~Three months ended~~ ~~June 30, 2018~~:

Common Stock
Accumulated
Other Comprehensive
Loss

Retained
Earnings
Total Stockholders’
Equity
(In thousands)
Shares

Amount

Balance, March 31, 2018
7,006

$
34,521

$
(1,264
)

$
19,264

$
52,521

Exercise of stock options, vesting or restricted stock units and grants of restricted shares, net of share exchanged as payment
10

69

—

—

69

Share issuances for director compensation
8

—

—

—

—

Share-based compensation
—

225

—

—

225
Other comprehensive loss, net of tax
—

—

(419
)

—

(419
)
Net income
—

—

—

740

740
Balance, June 30, 2018
7,024

$
34,815

$
(1,683
)

$
20,004

$
53,136

~~Six~~ ~~months ended~~ ~~June 30, 2018~~:

Common Stock
Accumulated
Other Comprehensive
Loss
Retained
Earnings
Total Stockholders’
Equity
(In thousands) Shares
Amount
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
36 251 — — 251
Share issuances for director compensation
8

—

—

—

—
Share-based compensation — 484 — — 484
Other comprehensive loss, net of tax — — (230 ) — (230 )
Net income — — — 567 567
Balance, June 30, 2018 7,024 $ 34,815 $ (1,683 ) $ 20,004 $ 53,136

Excess and obsolete inventories were written down by $656,000 at March 31, 2020 and $649,000 at December 31, 2019. Demonstration inventories are stated at cost less accumulated amortization, generally based on a 36 month useful life. Accumulated amortization for demonstration inventories totaled $2.4 million at both March 31, 2020 and December 31, 2019.

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 cost 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:

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:

9.10. INTANGIBLE ASSETS:

Impairment Considerations (goodwill and intangibles)

The current Covid-19 pandemic has caused a significant deterioration in global economic conditions, including high levels of unemployment and a significant contraction in economic activity. The global economy may be in the midst of an economic recession or depression. We evaluate the carrying value of goodwill and intangibles for impairment whenever management believes indicators of impairment might exist. A significant deterioration in macroeconomic conditions is a key indicator of possible impairment. In addition to macroeconomic conditions, management considered the factors in ASC 350 when analyzing goodwill and intangibles for possible impairment, including the following:

Conditions in the global SMT and semiconductor capital equipment markets;
Our revenue and profitability in the three months ended March 31, 2020;
Our backlog at March 31, 2020, which stood at $24.8 million;
Our forecasts for revenue and profitability for the remainder of 2020;
The manner of use and applicability of our intangibles, which is not expected to change; and
Our stock market capitalization, which is significantly greater than our net book value.

After carefully considering the factors outlined above, among others, we determined that it is more likely than not that our goodwill and intangibles were not impaired as of March 31, 2020.

Intangible assets consist of the following:

June 30, 2019

December 31, 2018
(In thousands)

Gross
Carrying
Amount

Accumulated
Amortization

Net

Gross
Carrying
Amount

Accumulated
Amortization

Net
Patents

$
2,815

$
(2,597
)

$
218

$
2,754

$
(2,533
)

$
221

Software

206

(156
)

50

206

(141
)

65

Marketing assets and customer relationships

101

(59
)

42

101

(54
)

47

Non-compete agreements

101

(101
)

—

101

(101
)

—

$
3,223

$
(2,913
)

$
310

$
3,162

$
(2,829
)

$
333


	March 31, 2020							December 31, 2019
(In thousands)	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Patents	$	2,916	$	(2,700	)	$	216	$	2,898	$	(2,662	)	$	236
Software	206		(178		)	28		206		(170		)	36
Marketing assets and customer relationships	101		(65		)	36		101		(63		)	38
	$	3,223	$	(2,943	)	$	280	$	3,205	$	(2,895	)	$	310

Amortization expense ~~for our intangible assets~~ in the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 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 for the next five years is expected to be as follows: ~~$82,000~~$126,000 for the remainder of ~~2019~~2020; ~~$139,000~~$100,000 in ~~2020~~2021; ~~$65,000~~$43,000 in ~~2021~~; ~~$13,000 in~~ 2022; $9,000 in 2023; ~~and~~ 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 no impairments in the six months ended June 30, 2019 or the six months ended June 30, 2018.

In the ~~six~~three months ended ~~June 30, 2019~~,March 31, 2020, sales to significant customer A accounted for ~~14%~~15% of our total revenue. As of ~~June 30, 2019~~,March 31, 2020, accounts receivable from significant customer A ~~were~~was $~~2.2~~1.4 million.

~~11.~~12. NET INCOME PER SHARE:

~~Basic net~~Net income per basic share ~~for a period~~ 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. ~~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 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			Net Income		Weighted Average Shares Outstanding	Per Share Amount
Three Months Ended June 30, 2019
Three Months Ended March 31, 2020
Basic	$	464	7,106	$	0.07		$	844	7,157	$	0.12
Dilutive effect of common equivalent shares	—		190	(0.01		)	—		210	(0.01		)
Dilutive	$	464	7,296	$	0.06		$	844	7,367	$	0.11

(In thousands except per share amounts)

Net Income

Weighted Average
Shares Outstanding

Per Share Amount
Three Months Ended June 30, 2018

Basic

$
740

7,010

$
0.11
Dilutive effect of common equivalent shares

—

232

(0.01
)
Dilutive

$
740

7,242

$
0.10

(In thousands except per share amounts)

Net Income

Weighted Average
Shares Outstanding

Per Share Amount
Six Months Ended June 30, 2019

Basic

$
959

7,103

$
0.14
Dilutive effect of common equivalent shares

—

206

(0.01
)
Dilutive

$
959

7,309

$
0.13

(In thousands except per share amounts)	Net Income		Weighted Average Shares Outstanding	Per Share Amount		Net Income		Weighted Average Shares Outstanding	Per Share Amount
Six Months Ended June 30, 2018
Three Months Ended March 31, 2019
Basic	$	567	6,998	$	0.08	$	495	7,100	$	0.07
Dilutive effect of common equivalent shares	—		116	—		—		222	—
Dilutive	$	567	7,114	$	0.08	$	495	7,322	$	0.07

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: ~~200,000~~145,000 shares in the three months ended ~~June 30, 2019; 180,000~~ ~~shares in the~~ March 31, 2020~~six months ended June 30, 2019~~ and ;~~123,000~~160,000 shares in the three months ended ~~June 30, 2018~~; ~~and~~ ~~369,000~~ ~~shares in the~~ ~~six months ended June 30, 2018~~March 31, 2019.

~~12.~~13. OTHER COMPREHENSIVE ~~INCOME:~~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. ~~Reclassifications and taxes~~There were 0 reclassification adjustments in the three months ended March 31, 2020 or the three months ended March 31, 2019. Taxes related to items of other comprehensive income (loss) are as ~~follows~~:follows:

Three Months Ended June 30, 2019 Three Months Ended June 30, 2018
(In thousands) Before Tax
Tax Effect
Net of Tax Amount
Before Tax
Tax Effect
Net of Tax Amount
Foreign currency translation adjustments $ (17 ) $ — $ (17 ) $ (422 ) $ — $ (422 )
Net changes related to available-for-sale securities:

Unrealized gains (losses)
70 (14 ) 56 4 (1 ) 3
Reclassifications included in interest income and other
—
—
— —
—
—
Net changes related to available-for-sale securities 70 (14 ) 56 4 (1 ) 3
Other comprehensive income $ 53 $ (14 ) $ 39 $ (418 ) $ (1 ) $ (419 )

Six Months Ended June 30, 2019 Six Months Ended June 30, 2018
(In thousands) Before Tax
Tax Effect
Net of Tax
Amount
Before Tax
Tax Effect

Net of Tax
Amount
Foreign currency translation adjustments $ 70 $ — $ 70 $ (202 )
$ —
$ (202
)
Net changes related to available-for-sale securities:

Unrealized gains (losses)
128 (26 ) 102 (36 ) 8
(28
)
Reclassifications included in interest income and other —
—
—
—
—
—

Net changes related to available-for-sale securities 128
(26
) 102
(36
) 8
(28
)
Other comprehensive income $ 198 $ (26 ) $ 172
$ (238
) $ 8
$ (230 )

	Three Months Ended March 31, 2020									Three Months Ended March 31, 2019
(In thousands)	Before Tax			Tax Effect			Net of Tax Amount			Before Tax		Tax Effect			Net of Tax Amount
Foreign currency translation adjustments	$	(600	)	$	—		$	(600	)	$	87	$	—		$	87
Unrealized gains on available-for-sale securities		140			(30	)		110			58		(12	)		46
Other comprehensive income (loss)	$	(460	)	$	(30	)	$	(490	)	$	145	$	(12	)	$	133

At ~~June 30,~~March 31, 2020 and March 31, 2019, ~~and~~ ~~June 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 for the six months ended June 30, 2019

70

102
172
Balances at June 30, 2019

$
(1,579
)

$
61

$
(1,518
)

(In thousands)	Foreign Currency Translation Adjustments			Available- for-Sale Securities		Accumulated Other Comprehensive Loss
Balances at December 31, 2019	$	(1,475	)	$	69	$	(1,406	)
Other comprehensive income (loss) for the three months ended March 31, 2020	(600		)	110		(490		)
Balances at March 31, 2020	$	(2,075	)	$	179	$	(1,896	)

(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 six months ended June 30, 2018

(202
)

(28
)

(230
)
Total change for the period

(202
)

(72
)

(274
)
Balances at June 30, 2018

$
(1,596
)

$
(87
)

$
(1,683
)

(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 for the three months ended March 31, 2019	87			46			133
Balances at March 31, 2019	$	(1,562	)	$	5		$	(1,557	)

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

The following management’s discussion and analysis of the financial condition and results of operations of CyberOptics Corporation and its wholly-owned subsidiaries ("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) a possible world-wide recession or depression resulting from the economic consequences of the Covid-19 pandemic; (ii) the negative effect on our revenue and operating results of the Covid-19 crises on our customers and suppliers and the global supply chain; (iii) the availability of parts to meet customer orders; (iv) the level of anticipated revenues, gross margins, and expenses; ~~(ii)~~(v) the timing of orders and shipments of our existing products, particularly ~~the SQ3000~~, our 3D3D Multi-Reflection Suppression™ (MRS™)-enabled SQ3000™ Multi-Function system for automated optical inspection ("AOI") ~~system; (iii)~~and MX systems for memory module inspection; (vi) the level of orders from our original equipment manufacturer ("OEM") customers; (vii) 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)~~(viii) the ~~amount~~market acceptance of ~~anticipated revenue~~our SQ3000 Multi-Function inspection and ~~potential revenue opportunity from recently introduced new~~measurement system and products ~~or potential new products we may launch in the future;~~for semiconductor advanced packaging inspection and ~~(v)~~metrology (ix) our assessment of trends in the ~~economy in general and, the~~ surface mount technology ~~('SMT"~~("SMT") and semiconductor capital equipment markets, ~~in particular,~~ and ~~their~~the impact of the current economic crisis resulting from the Covid-19 pandemic on the markets for our ~~products.~~products; and (x) 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~~anticipated. Therefore, 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 endedDecember 31, ~~2018~~.2019.

AsWe are a leading global developer and manufacturer of high precision 3D3D sensors and system products for inspection and metrology. We also develop and manufacture our WaferSense® products, which is a family of wireless, wafer-shaped sensors that provide measurements of critical factors in the semiconductor fabrication process. We intend to leverage our sensor technologies in the surface mount technology ("SMT") and semiconductor industries to deliver profitable growth. A key element of our strategy is the continued development and sale of high precision 3D sensors and system products based on our proprietary Multi-Reflection Suppression ("MRS") technology. We believe that our MRS technology is a breakthrough 3D optical technology for high-end inspection and metrology with the potential to ~~leverage~~significantly expand our 3~~D sensor technologies in our~~ ~~three~~ ~~key vertical markets: SMT; semiconductor; and metrology.~~ Amarkets. Another key element in our strategy is the continued development and ~~sale~~introduction of new ~~high precision~~sensor applications for our WaferSense® family of products.

3~~D 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 months ended June 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 ~~expect sluggish market conditions to persist~~believe that the three months ended September 30, 2019 marked the trough of the downturn in the ~~second half of 2019.~~SMT and semiconductor capital equipment markets, and that industry conditions have started to strengthen. Over the longer-term (i.e., the next several years), we expect a growing number of opportunities in the markets for SMT and semiconductor inspection and metrology. We believe ~~MRS has~~that our 3D MRS-enabled sensor and system products and our WaferSense® family products have the potential to expand our presence in the markets for SMT and semiconductor capital equipment. However, our sales of MRS-based products in the second half of 2019 will most likely continue to be negatively impacted by the sluggish conditions in the SMT and semiconductor capital equipment markets.

Manufacturing yield challenges as electronics and semiconductors become more complex are driving the need for more precise inspection and metrology. ~~We believe~~ 3DIn our view, 3D inspection and metrology represent high-growth segments in both the SMT and semiconductor capital equipment markets. ~~Over the longer-term, we expect a growing number of opportunities in the markets for SMT and semiconductor inspection and metrology.~~ We believe our 3D3D MRS technology platform is well suited for many applications in these markets, particularly with respect to complex circuit boards and semiconductor wafer level ~~back-end~~ and advanced packaging inspection and metrology applications. We are taking advantage of current market trends by deploying our 3D3D MRS sensor technology in the following products:

Revenue from our MRS based products, including 3D AOI systems and high precision 3D MRS sensors, increased by $2.9 million or 66% to ~~$10.3~~$7.2 million in the ~~six months ended June 30, 2019, an increase~~first quarter of ~~approximately $1.7 million or 20%~~2020, from ~~$8.6~~$4.3 million in the ~~six months ended June 30, 2018. Sales~~first quarter of 3~~D MRS sensors declined 23% on a year-over-year basis in the~~ ~~six months ended June 30, 2019~~2019. We believe we will continue to ~~$2.8 million, as OEM customers reduced their orders due to sluggish market conditions in the global SMT and semiconductor markets. Despite the weak market conditions,~~increase sales of 3~~D MRS-enabled SQ3000~~ ~~AOI systems increased 47%~~products based on ~~a year-over-year basis in the~~ ~~six months ended June 30, 2019~~ ~~to $7.1 million. Over the longer-term, we anticipate increasing sales of MRS-based products~~our MRS technology in the SMT and semiconductor capital equipment ~~markets~~markets. In particular, we believe inspection and metrology products for semiconductor wafer level and advanced packaging applications represent significant long-term growth opportunities. We anticipate increasing sales of MRS-based products by ~~utilizing~~reaching 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. We have recently introduced several new WaferSense® products to further enhance our revenue growth prospects, including the In-Line Particle Sensor™ (IPS™), which detects particles in gas and vacuum lines in semiconductor process equipment, and is particularly relevant for EUV lithography tools. Additional WaferSense® applications are currently under development. Over the longer-term, strong future sales growth is anticipated for our WaferSense® family of products.

Our order backlog was ~~$13.0 million~~ at ~~June 30, 2019, up from $11.6~~$24.8 million at March 31, ~~2019, but down~~2020, an increase from $~~13.8~~$17.7 million at ~~June 30, 2018. Orders~~December 31, 2019, and $11.6 million at March 31, 2019. We are forecasting sales of $15.5 to $17.5 million for ~~our products started to weaken in~~ the second quarter of ~~2019 due to~~2020. We believe that demand in the ~~cyclical, industry-wide slowdown~~SMT and semiconductor capital equipment markets will remain solid in 2020. However, an increase in the severity of the current Covid-19 outbreak, or a resulting prolonged economic recession or depression, could cause a slow-down in demand for SMT and semiconductor capital ~~equipment~~equipment. Over the long-term, anticipated sales growth of our 3D MRS-enabled products and WaferSense sensors should increase our revenues and net income in the future.

In December 2019, a novel strain of coronavirus ("Covid-19") was first identified, and in March 2020, the World Health Organization categorized Covid-19 as ~~well as~~a pandemic. The Covid-19 pandemic is affecting our customers, suppliers, service providers and employees, and the ~~uncertainty surrounding~~ultimate impacts of Covid-19 on our business, results of operations, liquidity and prospects are not fully known at this time. However, the ~~global trade environment.~~ Covid-19 outbreak has had a minimal impact on our business to date. Our ~~backlog at June 30, 2019 includes a large order for 3D MRS sensors from an existing OEM customer which is primarily scheduled for delivery~~revenues increased by 10% to $16.4 in ~~periods after 2019.~~ ~~We are forecasting sales of $12.0~~ ~~to $13.5~~ ~~million for~~ the ~~third~~first quarter of ~~2019, down~~2020, from $~~16.7~~$15.0 million in the ~~third~~first quarter of ~~2018.~~2019. As noted above, we ended the first quarter of 2020 with a record quarterly backlog, and are still forecasting a solid year-over-year revenue growth in the second quarter of 2020. However, this could change if the pandemic worsens. The most significant impacts currently on our business from the Covid-19 pandemic include the following:

· Our key factories are located in Minnesota and Singapore. Both of these locations are subject to government mandated shelter-in-place orders. Because our operations have been deemed essential, we have been able to keep our factories up and running while the shelter-in-place mandates are in effect. We ~~intend~~have implemented split-shifts for our factory operations to ~~invest~~minimize the number of employees in our facilities at any given time, however, this has not affected our production capacity. Our non-factory employees are required to work remotely. To date, the shelter-in-place mandates have had a minimal impact on employee productivity, mainly some disruption to ongoing research and development ~~throughout~~("R&D") activities, but that could change if the ~~current market downturn so~~pandemic worsens and is more than temporary.

·Sales of some products, mainly our SQ3000 Multi-Function inspection and measurement systems and MX memory module inspection products, require customer acceptance due to performance or other criteria that weis considered more than a formality. Many of our customer’s factories have remained open during the Covid-19 pandemic because they are ~~well positioned~~deemed to ~~capitalize~~be essential under most government shelter-in-place mandates. However, this could change if the pandemic worsens and global travel restrictions could hinder our ability to obtain customer acceptances in a timely manner, 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 mostly resolved, but that could change significantly if the pandemic worsens and is more than temporary. To date, our on-hand inventories have been sufficient to enable us to work through any supply disruptions with minimal impact on our sales or ability to service customers. We presently do not expect that supply chain disruptions will have a significant impact on our revenue in the ~~compelling long-term growth opportunities for~~second quarter of 2020.

We currently do not anticipate any significant credit losses or asset impairments resulting from the Covid-19 pandemic. As of March 31, 2020, our ~~MRS based~~available balances of cash and ~~WaferSense® family of~~marketable securities totaled $28.8 million. ~~products.~~ We believe that we have the resources required to attain our growth objectives ~~given~~and to meet any unforeseen difficulties resulting from the Covid-19 pandemic. We will continue to closely monitor the Covid-19 pandemic and its impact on our ~~available cash and marketable securities balances totaling $~~business in the coming months.

On March 27, 2020, the "Coronavirus Aid, Relief and Economic Security (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. It also appropriated funds for the SBA Paycheck Protection Program loans that are forgivable in certain circumstances to promote continued employment. We have analyzed the provisions of the CARES Act and presently do not believe it will have a material impact on our financial condition, results of operations or liquidity. However, we will continue to monitor the impact the CARES Act may have on our business.

Our revenues ~~decreased~~increased by 510% to $~~15.0~~16.4 million in the three months ended ~~June 30, 2019~~,March 31, 2020, from $~~15.9~~15.0 million in the three months ended ~~June 30, 2018~~. ~~Our revenues of $30.0 million in the~~ ~~six months ended June 30, 2019~~ ~~were virtually unchanged when compared to the~~ ~~six months ended June 30, 2018~~. March 31, 2019. The following table sets forth revenues by product line for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018~~2019:

Revenues from sales of high precision 3D and 2D2D sensors ~~decreased~~increased by $~~3.2~~ ~~million~~$373,000 or 6210% to $~~2.0~~$4.1 million in the three months ended ~~June 30, 2019~~,March 31, 2020, from $~~5.3~~$3.7 million in the three months ended ~~June 30, 2018~~March 31, 2019. ~~Revenues from sales~~Sales of high precision 3~~D and~~ 2D3D MRS-enabled sensors ~~decreased~~increased by $~~4.6~~$1.3 million or 44%76% to $~~5.8~~ ~~million~~ ~~in the~~ ~~six months ended June 30, 2019, from $10.3~~$3.1 million in the ~~six~~three months ended ~~June 30, 2018~~March 31, 2020 from $1.7 million in the three months ended March 31, 2019..The increase was due to improving conditions in the global semiconductor capital equipment market. Sales of older 2D legacy sensors, which declined on a year-over-year basis in the three months ended March 31, 2020, are expected to rebound and post modest year-over-year growth in the second quarter of 2020. ~~OEM customers reduced their purchases~~Sales of high precision 3D and 2D ~~sensors in response to weak~~ ~~conditions in the global SMT and semiconductor capital equipment markets.~~ ~~Sales of high precision~~ 3~~D and~~ 2D sensors are dependent on the success of our OEM customers selling products that incorporate our sensors. ~~Although sales of high precision~~ 3~~D and~~ 2~~D sensors are expected to rebound modestly in the third quarter of 2019 on a sequential basis, soft market conditions are expected to persist, resulting in lower year-over-year sales.~~ We believe sales of our new 3D MRS enabled sensors will represent an increasing percentage of our total high precision 3D and 2D sensor sales in the future. ~~However, quarterly~~Quarterly sales of high precision 3D and 2D sensors, including 3D MRS enabled sensors, are prone to significant fluctuations ~~both sequentially~~due to variations in market demand.

Revenues from sales of inspection and onmetrology systems increased by $1.3million or18% to $8.4million in thethree months ended March 31, 2020, from $7.1million in the three months ended March 31, 2019.The revenue increase was primarily due to higher sales of SQ3000™ Multi-Function inspection and measurement systems, which increased by $848,000 or 34% to $3.3 million in the three months ended March 31, 2020 from $2.5 million in the three months ended March 31, 2019. The increase in sales of SQ3000™ Multi-Function systems was due to the competitive advantages offered by our SQ3000™ Multi-Function system products, and because many companies are transitioning from 2D AOI to 3D AOI to meet the increasingly demanding product inspection and metrology requirements in the SMT and semiconductor markets. The market transition away from 2D AOI is expected to result in an industry-wide 30% compound annual rate of growth in global sales of 3D AOI systems through 2024. Given these market dynamics and because of the competitive advantages inherent in our 3D MRS sensor technology, we anticipate sales of SQ3000™ Multi-Function systems will represent an increasing percentage of our total inspection and metrology system sales in the future. Revenues from sales of 2D and 3D memory module inspection systems were down slightly in the three months ended March 31, 2020, when compared to the three months ended March 31, 2019. In the three months ended March 31, 2020, we recognized revenue from the first order for our next generation 3D MRS-enabled MX3000 memory module inspection system. This order was made to a ~~year-over-year basis.~~new memory customer. As a result, two of the world’s three largest memory manufacturers now use either our 2D MX600 or 3D MX3000 memory module inspection systems. We believe the potential market opportunity for the MX3000 system is significant. Revenues from sales of legacy inspection system products were up approximately $1.0 million in the three months ended March 31, 2020, when compared to the same period of last year.

Revenues from sales of semiconductor sensors, principally our ~~WaferSense product~~WaferSense® line of products, decreased by $190,000~~818,000~~ or 521% to $3.9~~3.1~~ ~~million in the~~ ~~three months ended June 30, 2019, from $3.9~~ ~~million in the~~ ~~three months ended June 30, 2018~~. ~~Revenue from sales of semiconductor sensors increased by $157,000~~ ~~or 2% to $7.3~~ million in the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020, from $4.1~~7.1~~ million in the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019. InThe sales decrease in 2020 occurred because significant sales of WaferSense products were made in the three months ended ~~June 30,~~March 31, 2019 ~~customers for our semiconductor sensors reduced their purchases in response~~ to ~~weak conditions in the global semiconductor market. In the six months ended June 30, 2019, incremental sales of WaferSense products to advanced~~ Asian semiconductor manufacturing facilities that were commissioned in ~~2018 were substantially offset by reduced sales resulting from weak conditions in the global semiconductor market. Sales~~2018. The order backlog of semiconductor sensors ~~are~~remains strong, although a sequential sales decline is forecasted ~~to be flat to down slightly in~~for the ~~third~~second quarter of ~~2019 on both a sequential and year-over-year basis.~~ 2020.Over the longer-term, we anticipate that the benefits from growing market awareness of our WaferSense products, improved account penetration at major semiconductor manufacturers and capital equipment suppliers and new product introductions will lead to additional ~~WaferSense~~WaferSense® product sales.

~~Revenues from sales of inspection and metrology systems~~ ~~increased~~ ~~by $3.3 million or 49% to $9.9~~ ~~million in the~~ ~~three months ended June 30, 2019, from $6.7~~ ~~million in the~~ ~~three months ended June 30, 2018~~. ~~Revenues from sales of inspection and metrology systems increased by $4.4 million or 35% to $17.0~~ ~~million in the~~ ~~six months ended June 30, 2019, from $12.6~~ ~~million in the~~ ~~six months ended June 30, 2018~~. ~~The revenue increases resulted from higher sales of~~ 3~~D MRS-enabled SQ3000~~3~~D AOI systems, including the new~~ SQ~~3000~~™ 3~~D CMM system, and sales of MX600~~ ~~memory module inspection systems. Sales of SQ3000~~ ~~systems increased by $2.0 million or 75% to $4.6 million in the~~ ~~three months ended June 30, 2019, when compared to the~~ ~~three months ended June 30, 2018~~. ~~Sales of SQ3000~~ ~~systems increased by $2.3 million or 47% to $7.1 million in the~~ ~~six months ended June 30, 2019, when compared to the~~ ~~six months ended June 30, 2018~~. S~~ales of MX600 memory module inspection systems were $1.1 million and $2.7 million in the three and six months ended June 30, 2019, respectively. There were no sales of MX600 memory module inspection systems in the three and six months ended June 30, 2018.Sales of legacy~~ 2~~D AOI and solder paste inspection systems were lower in the three and~~ ~~six months ended June 30, 2019, when compared to the three and six months ended June 30, 2018. Sales~~ ~~of inspection and metrology systems are forecasted to decline in the third quarter of 2019 on both a sequential and year-over-year basis due to weak conditions in the global~~ ~~SMT and semiconductor capital equipment markets~~.

~~We believe a growing number of companies are transitioning from~~ 2~~D AOI to~~ 3~~D AOI systems to meet the increasingly demanding product inspection requirements in the semiconductor, electronics and industrial markets. As a result, demand for~~ 3~~D AOI systems is growing rapidly. We anticipate sales of~~ 3~~D MRS enabled SQ3000~~3~~D AOI systems, including the new~~ SQ~~3000~~™ 3~~D 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~~ 3~~D MRS technology will provide us with an opportunity to capture significant market share in the~~ 3~~D AOI systems market.~~

Export revenues totaled $~~10.9~~$11.8 million or 73%72% of our total revenues in the three months ended ~~June 30, 2019~~,March 31, 2020, compared to $~~11.3~~$10.6 million or 71%71% of total revenues in the three months ended ~~June 30, 2018~~. ~~Export revenues totaled $21.5~~ ~~million or~~ 72~~% of our total revenues in both the~~ ~~six months ended June 30, 2019~~ ~~and~~ ~~six months ended June 30, 2018. Export revenue as a percentage of total revenue was higher~~ ~~in the~~ ~~three months ended June 30, 2019, when compared to the three months ended June 30, 2018, due to increases in sales of inspection and metrology systems outside the United States.~~March 31, 2019. There was no significant change in export revenues as a percentage of total revenues in the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020, when compared to the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019.

Cost of revenues ~~decreased~~increased by $~~135,000~~$1.2 million or 15% to $9.1 or 2~~% to $8.5~~million in the three months ended ~~June 30, 2019~~,March 31, 2020, from $~~8.6~~$8.0 million in the three months ended ~~June 30, 2018~~March 31, 2019. . The de~~crease~~increase in cost of revenues was due to a 10% increase in revenues in the three months ended ~~June 30, 2019~~ ~~was due to the~~ 5~~% decrease in revenues for this period~~March 31, 2020 and a change in product mix. ~~Higher cost~~, lower gross margin products constituted a greater percentage of our total revenues in the three months ended June 30, 2019, when compared to the three months ended June 30, 2018. The change in cost of revenues in the six months ended June 30, 2019 when compared to the six months ended June 30, 2018 was inconsequential.

Total gross margin as a percentage of revenues was 44%44% in the three months ended ~~June 30, 2019~~,March 31, 2020, compared to 4647% in the three months ended ~~June 30, 2018~~March 31, 2019. ~~. Total gross margin as a percentage of revenues was~~ 45% ~~in both the~~ ~~six months ended June 30, 2019~~ ~~and 2018.~~ The reduction in gross margin percentage in the three months ended ~~June 30, 2019~~March 31, 2020 was primarily due to a ~~change in mix of products sold.~~less favorable product mix. Sales of higher margin semiconductor sensors represented a smaller percentage of our total revenues in the three months ended ~~June 30, 2019,~~March 31, 2020 when compared to the three months ended ~~June 30, 2018. Total~~March 31, 2019. In addition, the gross ~~margins~~margin percentage for our next generation 3D MRS-enabled MX3000 memory module inspection system is lower than many of our other products due the significant material handling and automation required. Continued pricing pressures also contributed to the decline in total gross margin as a percentage of revenues.

Our total gross margin as a percentage of revenues in the ~~third~~second quarter of ~~2019 are~~2020 is expected to be ~~slightly higher on a sequential basis due to a more favorable product mix.~~consistent with the first quarter of 2020.

Our markets are highly price competitive, particularly in the ~~electronic~~electronics assembly ~~market.~~and SMT markets. As a result, we have experienced continual pressure on our gross margins. We compensate for the pressure to reduce the price of our products by introducing new products with more features and improved performance and through manufacturing cost reduction programs. Sales of many products that we have recently introduced or are about to introduce, including our current and future ~~SQ3000 3D AOI products~~MRS-enabled SQ3000™ Multi-Function inspection and ~~SQ3000™ 3D CMM products,~~measurement systems, next generation 3D MRS sensors and ~~WaferSense sensor~~semiconductor sensors, primarily our WaferSense® line of products, have, or are expected to have, more favorable gross margins than many of our existing products. Our next generation 3D MRS-enabled sensor and system products are being designed for more complex and demanding inspection and metrology applications in the SMT and semiconductor markets, including wafer level and advanced packaging inspection and metrology. Sales prices and gross profit margins for these applications tend to be higher than margins for products sold in the broader SMT market.

~~Research and development ("~~R~~&D")~~&D expenses were $~~2.2~~$2.4 million or 15% of revenues in the three months ended ~~June 30, 2019~~,March 31, 2020, compared to $~~2.2~~$2.3 million or 14%15% of revenues in the three months ended ~~June 30, 2018~~March 31, 2019. . ~~R&D expenses were $4.5~~ ~~million or~~ 15% ~~of revenues in the~~ ~~six months ended June 30, 2019, compared to $4.4~~ ~~million or~~ 15~~% of revenues in the~~ ~~six months ended June 30, 2018~~. The ~~increases~~increase in R&D expenses in ~~both the~~ three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 were the result of higher compensation costs ~~due to pay increases~~ for new and existing R&D employees, ~~and hiring of new R&D employees, offset in part by lower~~including higher bonus accruals ~~for employees working in~~due to our ~~R&D department.~~ improved financial performance. Current R&D expenditures are primarily focused on continued development of our ~~MRS technology, including 3D sensor subsystems and commercialization~~portfolio of ~~our~~ next generation ultra-high resolution ~~three micron pixel~~ 3D ~~NanoResolution MRS sensor,~~MRS-enabled sensors and systems, and the continued development of new ~~applications~~WaferSense® products. We also continue to enhance our SQ3000™ Multi-Function inspection and measurement machines. The Covid-19 pandemic has caused some disruption to ongoing R&D activities due to requirements for ~~3D wafer level and memory module inspection.~~employees to work remotely.

Selling, general and administrative ("S,G&A") expenses were $~~3.8~~$4.2 million or 25% of revenues in the three months ended ~~June 30, 2019~~,March 31, 2020, compared to $~~4.1~~$4.2 million or 26%28% of revenues in the three months ended ~~June 30, 2018~~. ~~S,G&A expenses were $7.9~~ ~~million or 26% of revenues in the~~ ~~six months ended June 30, 2019, compared to $8.5~~ ~~million or~~ 28~~% of revenues in the~~ ~~six months ended June 30, 2018~~. March 31, 2019. The decrease in S,G&A expenses as a percentage of revenues in ~~both~~ the three ~~and six~~ months ended ~~June 30, 2019 was~~March 31, 2020 primarily reflected our higher revenue level. S,G&A expenses in the three months ended March 31, 2020 were favorably impacted by lower costs for travel and the cancellation of trade shows due to ~~lower compensation~~the Covid-19 pandemic, offset by higher costs ~~resulting from employee departures~~for professional fees and ~~lower~~ bonus ~~accruals.~~accruals due to our improved financial performance.

Total operating expenses in the ~~third~~second quarter of ~~2019~~2020 are expected to be ~~slightly higher when compared to~~ ~~operating expenses in the second quarter of 2019.~~roughly unchanged on a quarterly sequential basis.

Interest ~~inco~~meincome 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. WeIn the three months ended March 31, 2020, we recognized gains from foreign currency transactions of $172,000. In the three months ended March 31, 2019, we recognized losses from foreign currency transactions of $~~7,000~~ ~~in thethree months ended June 30, 2019, compared to~~ ~~gains of $96,000~~ ~~in the~~ ~~three months ended June 30, 2018~~. ~~We recognized losses from foreign currency transactions of $25,000~~ ~~in thesix months ended June 30, 2019, compared to~~ ~~gains from foreign currency transactions of $139,000~~ ~~in the~~ ~~six months ended June 30, 2018~~18,000.

We recorded income tax expense of $~~192,000~~$149,000 in the three months ended ~~June 30, 2019~~March 31, 2020, compared to income tax expense of $~~230,000~~134,000 in the three months ended ~~June 30, 2018~~March 31, 2019. ~~We recorded income tax expense of $326,000~~ ~~in thesix months ended June 30, 2019, compared to income tax expense of $147,000~~ ~~in the~~ ~~six months ended June 30, 2018~~. Our income tax expense in the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 reflected an effective ~~income~~ tax rate of approximately ~~25%, which included $9,000~~15% compared to an effective tax rate of ~~excess tax benefits from employee share-based payments. Our income tax expense~~approximately 21% in the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019. ~~reflected an~~The reduction in our effective tax rate in the three months ended March 31, 2020, when compared to the three months ended March 31, 2019, was due to deductions for Foreign Derived Intangible Income ("FDII") and Global Intangible Low-Taxed Income ("GILTI") and foreign tax credits.We previously were unable to take advantage of these additional deductions and credits due to our un-used federal net operating loss carry-forwards which are being forecasted to be used up in 2020.On a recurring basis, our effective income tax rate of ~~approximately~~ ~~21%, which included $33,000~~ ~~of excess tax benefits from employee share-based payments.~~ ~~Our effective income tax rate in the~~ ~~six months ended June 30, 2019~~ ~~and the~~ ~~six months ended June 30, 2018~~ ~~was~~is significantly impacted by ~~Global Intangible Low Tax Income (GILTI),~~the GILTI and FDII regulations, U.S. federal R&D tax credits and ~~excess~~foreign 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~~R&D 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 pastthree 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~~were not required.

We have amended our income tax returns for prior periods in connection with the Inland Revenue Authority of Singapore's audits of our 2016 and 2015 income tax returns. We anticipate recognizing an approximate $200,000 non-cash income tax benefit from the release of an income tax reserve in the third quarter of 2019 in connection with the completion of these audits.

~~Backlog~~

~~Backlog totaled $13.0 million at~~ ~~June 30, 2019, a decrease from $13.6~~ ~~million at~~ ~~December 31, 2018~~ ~~and $13.8~~ ~~million at~~ ~~June 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.~~

Liquidity and Capital Resources

Our cash and cash equivalents increased by $~~416,000~~$233,000 in the ~~six~~three months ended ~~June 30, 2019~~.March 31, 2020. Cash provided by operating activities was $2.5 million. Investing activities used $2.3 million of $cash, with ~~1.3~~ ~~million and proceeds of $2.9~~ ~~million from maturities of marketable securities were mostly offset by~~ purchases of marketable securities totaling $~~2.8~~$5.3 million and purchases of fixed assets and capitalized patent costs totaling $~~1.0~~$146,000, ~~million.~~being partially offset by proceeds of $3.1 million from maturities of marketable securities. 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 $500,000~~$2.5 million to $~~25.8~~$28.8 as of March 31, 2020, from $26.3 million as of ~~June 30, 2019~~ ~~from $25.3~~ ~~million as of~~ December 31, ~~2018~~.2019.

Operating activities provided $~~1.3~~$2.5 million of cash in the ~~six~~three months ended ~~June 30, 2019~~.March 31, 2020. The amount of cash provided by operations was favorably impacted by net income of $~~959,000~~.$844,000. Net income was affected by non-cash expenses totaling $~~2.1milli~~on$751,000 for depreciation and amortization, ~~provision~~non-cash operating lease expense, recovery for doubtful accounts, deferred ~~income~~ taxes, non-cash ~~losses~~gains from foreign currency transactions, share-based compensation costs and an unrealized loss on our available-for-sale equity security. Changes in operating assets and liabilities providing cash ~~in the six months ended June 30, 2019,~~ included a decrease in accounts receivable of $~~320,000~~, ~~a decrease in other assets of $648,000, an increase in advance customer payments of $186,000~~$1.8 million and an increase in ~~operating lease assets and liabilities~~accounts payable of ~~$397,000.~~$1.3 million. Changes in operating assets and liabilities using cash ~~in the six months ended June 30, 2019~~ included an increase in inventories of $~~1.9~~$2.1 million, ~~a decrease~~payments for operating lease liabilities of $200,000 and minimal changes in ~~accounts payable of $865,000~~other operating assets and ~~a decrease in accrued expenses of $561,000~~.liabilities totaling $46,000. Accounts receivable decreased due to ~~lower~~faster collection of accounts receivable and a small decrease in sales in the ~~second~~first quarter of ~~2019, when~~2020 compared to the fourth quarter of ~~2018, offset in part by~~ ~~slower collection~~2019. We ended the first quarter of 2020 with a record quarterly backlog. Inventories and accounts receivable, mainly resulting from a change in product mix. Sales of inspection and metrology systems, which typically have longer collection periods than sales of our sensor products, constituted a larger portion of our revenues in the six months ended June 30, 2019. Other assets decreased because deposits previously paid to a key supplier of materials were used to purchase inventories. The increase in advance customer payments resulted from receipt of cash prior to revenue recognition for sales with customer acceptance provisions. The increase in operating lease assets and liabilities resulted from lease incentives, including free rents and facility operating costs, and the effects of straight-line rent expense. ~~Inventories~~payable at March 31, 2020 increased due to ~~sluggish conditions in the global SMT and semiconductor capital equipment markets,~~planned purchases of raw materials to meet customer demand, with ~~a corresponding negative impact on sales also causing inventory levels to rise.~~ ~~Accounts payable decreased due to timing of inventory purchases, with~~ more raw materials being acquired in the first quarter of 2020 compared to the fourth quarter of ~~2018 and the early months of~~ 2019. These materials were subsequently paid for in the second quarter of 2019, resulting in a lower accounts payable balance. Accrued expenses decreased due to payment of 2018 bonuses in 2019, offset in part by accruals for taxes and other items.

Investing activities used $~~916,000~~$2.3 million of cash in the ~~six~~three months ended ~~June 30, 2019~~.March 31, 2020. Changes in the level of investment in marketable securities, resulting from purchases ~~sales~~ and maturities of those securities, ~~provided $102,000~~ ~~of cash in the~~ ~~six months ended June 30, 2019. We~~ used $~~1.0~~$2.2 million of cash in the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020. We used $146,000 of cash in the three months ended March 31, 2020 for the purchase of fixed assets and capitalized patent costs.

Financing activities from the exercise of stock options provided $~~59,000~~$85,000 of cash in the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020..

In July 2019, our ~~board~~Board of ~~directors~~Directors authorized a $3.0 million share repurchase program ~~that runs~~ through June 30, 2020. No shares were repurchased under this program in the three months ended March 31, 2020.

In February 2020, we finalized an extension to our lease for our existing 19,805 square foot mixed office and warehouse facility in Singapore, which serves as a sales, development and final assembly and integration facility for our inspection and metrology system products.The new lease runs from the expiration date of our old lease in July 2020 through July 24, 2023. Rent and facility operating costs under the new lease are expected to remain unchanged when compared to the old lease expiring in July 2020.

At ~~June 30, 2019~~,March 31, 2020, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities. These entities are established by some companies for the purpose of establishing off-balance sheet arrangements or for other contractually narrow or limited purposes.

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.

2523

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)~~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.

2624

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 risk factors discussed in Part I “Item 1A.1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~,2019, which could materially affect our business, financial condition or future results. There are no material changes from these risk factors, other than the addition of the following risk factor:

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

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

~~None.~~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. There were no share repurchases under this program in the three months ended March 31, 2020. The share repurchase program will terminate on June 30, 2020.

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) (~~1715d-14(a) (17 CFR ~~240.15~~d-14~~(a)~~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) (~~1715d-14(a) (17 CFR ~~240.15~~d-14~~(a)~~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~~:101:		Financial statements formatted in Inline Extensible Business Reporting Language: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated 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

2726

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: ~~August 7, 2019~~May 8, 2020

2827

Non-vested restricted stock units and restricted shares	Shares		Weighted Average Grant Date Fair Value
Non-vested at December 31, 2018	56,411		$	17.59
Restricted shares and restricted stock units					Shares		Weighted Average Grant Date Fair Value
Non-vested at December 31, 2019					68,204		$	17.39
Granted	8,000		17.26		—		—
Vested	(4,000	)	16.25		(2,000	)	17.26
Forfeited	(875	)	16.19		—		—
Non-vested at June 30, 2019	59,536		$	17.66
Non-vested at March 31, 2020					66,204		$	17.39


(In thousands)	June 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Raw materials and purchased parts	$	9,435	$	8,821	$	10,556	$	9,845
Work in process	1,819		2,446		2,055		1,837
Finished goods	6,309		4,896		3,055		2,373
Demonstration inventories, net					1,384		1,525
Total inventories	$	17,563	$	16,163	$	17,050	$	15,580


	Six Months Ended June 30,
(In thousands)	2019			2018
Balance at beginning of period	$	789		$	767
Accrual for warranties	450			218
Warranty revision	(22		)	20
Settlements made during the period	(379		)	(270		)
Balance at end of period	838			735
Current portion of estimated warranty liability	(806		)	(680		)
Long-term estimated warranty liability	$	32		$	55


	Three Months Ended March 31,
(In thousands)	2020			2019
Balance at beginning of period	$	798		$	789
Accrual for warranties	230			174
Warranty revision	1			17
Settlements made during the period	(244		)	(154		)
Balance at end of period	785			826
Current portion of estimated warranty liability	(748		)	(795		)
Long-term estimated warranty liability	$	37		$	31

	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
(In thousands)	2019		2018		2019		2018		2020		2019
High Precision 3D and 2D Sensors	$	2,004	$	5,253	$	5,753	$	10,308
High Precision 3D and 2D Sensors									$	4,122	$	3,749
Inspection and Metrology Systems										8,361		7,091
Semiconductor Sensors		3,122		3,940		7,258		7,101		3,946		4,136
Inspection and Metrology Systems		9,918		6,661		17,009		12,565
Total	$	15,044	$	15,854	$	30,020	$	29,974	$	16,429	$	14,976


	Three Months Ended June 30, 2019				Three Months Ended June 30, 2018
(In thousands except percentages)	Revenues		Percent of Revenues		Revenues		Percent of Revenues
Revenue recognized over time	$	292	2	%	$	1,127	7	%
Revenue recognized at a point in time		14,752	98	%		14,727	93	%
	$	15,044	100	%	$	15,854	100	%

	Fair Value Measurements at June 30, 2019 Using
(In thousands)	Balance June 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	$	9,447	$	—	$	9,447	$	—
Corporate debt securities and certificates of deposit	2,718		—		2,718		—
Asset backed securities	3,919		—		3,919		—
Equity security	54		54		—		—
Total marketable securities	$	16,138	$	54	$	16,084	$	—


	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	$	—


	Three Months Ended		Six Months Ended
Component (in thousands)	June 30, 2019		June 30, 2019
Operating lease cost	$	179	$	359
Variable lease cost		67	134
Short-term lease cost		2	4
Total	$	248	$	497


Twelve months ending June 30,	(In thousands)
2020	$	829
Twelve months ending March 31,			(In thousands)
2021	629		$	952
2022	619		961
2023	634		977
2024	650		778
2025 and thereafter	1,406
2025			662
2026 and thereafter			909
Total lease payments		4,767		5,239
Less: amount representing interest	960		745
Present value of operating lease liabilities	$	3,807	$	4,494


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


·	Our next generation MX3000 AOI system for 3D inspection of memory modules following the singulation step of the manufacturing process. We recognized our first revenue from the sale of the MX3000 in the first quarter of 2020.


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