UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

	FORM 10-Q

	(Check One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2019~~2020

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

For the transition period from ______ to ______

	COMMISSION FILE NO. (0-16577)

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


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

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

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

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

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

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. At ~~October~~July 31, ~~2019~~,2020, there were ~~7,128,199~~7,252,984 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)	September 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
ASSETS
Cash and cash equivalents	$	8,104		$	9,248		$	6,609		$	5,836
Marketable securities	7,792			5,771			7,971			8,295
Accounts receivable, less allowances of $283 at September 30, 2019 and $314 at December 31, 2018	13,322			15,859
Accounts receivable, less allowances of $313 at June 30, 2020 and $322 at December 31, 2019							14,883			16,059
Inventories	16,360			16,163			19,915			15,580
Prepaid expenses							472			559
Other current assets	1,819			2,096			1,852			1,020
Total current assets	47,397			49,137			51,702			47,349

Marketable securities, long-term	9,392			10,322			14,499			12,168
Equipment and leasehold improvements, net	3,546			2,861			3,034			3,341
Intangible assets, net	295			333			258			310
Goodwill	1,366			1,366			1,366			1,366
Right-of-use assets (operating leases)	1,985			—			2,780			2,111
Other assets	249			259
Trade notes receivable, long-term							790			962
Deferred tax assets	5,276			5,422			4,981			4,992
Total assets	$	69,506		$	69,700		$	79,410		$	72,599

LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	4,945		$	8,513		$	9,587		$	7,023
Advance customer payments	528			636			869			499
Accrued expenses	2,350			3,568			3,333			2,572
Current operating lease liabilities	686			—			761			688
Total current liabilities	8,509			12,717			14,550			10,782

Other liabilities	162			629			148			202
Long-term operating lease liabilities	3,178			—			3,607			3,141
Reserve for income taxes	143			143			150			150
Total liabilities	11,992			13,489			18,455			14,275

Commitments and contingencies

Stockholders’ equity:
Preferred stock, no par value, 5,000,000 shares authorized, NaN outstanding	—			—			—			—
Common stock, no par value, 25,000,000 shares authorized, 7,121,671 shares issued and outstanding at September 30, 2019 and 7,100,825 shares issued and outstanding at December 31, 2018	36,397			35,637
Common stock, no par value, 25,000,000 shares authorized, 7,231,587 shares issued and outstanding at June 30, 2020 and 7,154,591 shares issued and outstanding at December 31, 2019							37,053			36,659
Accumulated other comprehensive loss	(1,786		)	(1,690		)	(1,646		)	(1,406		)
Retained earnings	22,903			22,264			25,548			23,071
Total stockholders’ equity	57,514			56,211			60,955			58,324
Total liabilities and stockholders’ equity	$	69,506		$	69,700		$	79,410		$	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 September 30,					Nine Months Ended September 30,				Three Months Ended June 30,					Six Months Ended June 30,
(In thousands, except per share amounts)	2019			2018		2019		2018		2020			2019		2020		2019
Revenues	$	12,391		$	16,683	$	42,411	$	46,657	$	15,996		$	15,044	$	32,425	$	30,020
Cost of revenues		6,885			9,247		23,290		25,738		8,682			8,455		17,828		16,405

Gross margin		5,506			7,436		19,121		20,919		7,314			6,589		14,597		13,615

Research and development expenses		2,408			2,162		6,950		6,585		2,182			2,249		4,577		4,542
Selling, general and administrative expenses		3,855			3,945		11,779		12,448		3,659			3,761		7,818		7,924

Income (loss) from operations		(757	)		1,329		392		1,886
Income from operations											1,473			579		2,202		1,149

Interest income and other		170			35		306		192		64			77		328		136

Income (loss) before income taxes		(587	)		1,364		698		2,078
Income before income taxes											1,537			656		2,530		1,285

Income tax expense (benefit)		(234	)		297		92		444		(96	)		192		53		326

Net income (loss)	$	(353	)	$	1,067	$	606	$	1,634
Net income										$	1,633		$	464	$	2,477	$	959

Net income (loss) per share – Basic	$	(0.05	)	$	0.15	$	0.09	$	0.23
Net income (loss) per share – Diluted	$	(0.05	)	$	0.15	$	0.08	$	0.23
Net income per share – Basic										$	0.23		$	0.07	$	0.35	$	0.14
Net income per share – Diluted										$	0.22		$	0.06	$	0.33	$	0.13

Weighted average shares outstanding – Basic		7,117			7,041		7,108		7,012		7,198			7,106		7,177		7,103
Weighted average shares outstanding – Diluted		7,117			7,299		7,245		7,176		7,447			7,296		7,407		7,309

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 September 30,

Nine Months Ended September 30,
(In thousands)

2019
2018

2019

2018
Net income (loss)

$ (353 )
$ 1,067

$
606

$
1,634

Other comprehensive loss, before tax:

Foreign currency translation adjustments

(269 )

(50 )

(199
)

(252
)

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

Unrealized gains (losses)

1

3

129

(33
)
Reclassification adjustment for gains included in net income

—

(3 )

—

(3
)
Total unrealized gains (losses) on available-for-sale securities

1

—

129

(36
)

Other comprehensive loss before income taxes

(268 )

(50 )

(70
)

(288
)
Income tax (provision) benefit

—

—

(26
)

8
Other comprehensive loss after income taxes

(268 )

(50 )

(96
)

(280
)
Total comprehensive income (loss)

$ (621 )
$ 1,017
$
510

$
1,354


	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands)	2020			2019			2020			2019
Net income	$	1,633		$	464		$	2,477		$	959

Other comprehensive income (loss) before income taxes:
Foreign currency translation adjustments		154			(17	)		(446	)		70

Unrealized gains on available-for-sale securities		121			70			261			128

Total other comprehensive income (loss) before income taxes		275			53			(185	)		198

Income tax provision		(25	)		(14	)		(55	)		(26	)

Total other comprehensive income (loss) after income taxes		250			39			(240	)		172

Total comprehensive income	$	1,883		$	503		$	2,237		$	1,131

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

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

CYBEROPTICS CORPORATION

(Unaudited)


	Nine Months Ended September 30,						Six Months Ended June 30,
(In thousands)	2019			2018			2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	606		$	1,634		$	2,477		$	959
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,102			1,876			1,304			1,358
Non-cash operating lease expense							272			—
Recovery for doubtful accounts	(31		)	(159		)	(9		)	(14		)
Deferred taxes	107			261			(48		)	201
Foreign currency transaction gains	(112		)	(140		)
Foreign currency transaction losses (gains)							(305		)	29
Share-based compensation	737			701			558			493
Unrealized loss on available-for-sale equity security	10			24			18			5
Realized gain on available-for-sale marketable securities	—			(3		)
Changes in operating assets and liabilities:
Accounts receivable	2,568			(3,594		)	1,357			320
Inventories	(1,123		)	(387		)	(5,006		)	(1,881		)
Other assets	235			(692		)
Prepaid expenses and other assets							(782		)	648
Accounts payable	(3,538		)	1,124			2,666			(865		)
Advance customer payments	(50		)	638
Advance customer payments and other							319			186
Accrued expenses	(1,077		)	382			780			(561		)
Operating lease assets and liabilities	482			—
Operating lease liabilities							(395		)	397
Net cash provided by operating activities	916			1,665			3,206			1,275

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of available-for-sale marketable securities	6,144			6,018			6,216			2,860
Proceeds from sales of available-for-sale marketable securities	—			480
Purchases of available-for-sale marketable securities	(7,080		)	(7,006		)	(7,980		)	(2,758		)
Additions to equipment and leasehold improvements	(1,065		)	(1,079		)	(477		)	(957		)
Additions to patents	(88		)	(76		)	(41		)	(61		)
Net cash used in investing activities	(2,089		)	(1,663		)	(2,282		)	(916		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options	173			452			256			59
Repurchase of common stock	(353		)	—
Proceeds from issuance of common stock under employee stock purchase plan	203			219
Net cash provided by financing activities	23			671
Tax payments for shares withheld related to stock option exercises							(420		)	—
Net cash (used in) provided by financing activities							(164		)	59

Effects of exchange rate changes on cash and cash equivalents	6			16			13			(2		)

Net increase (decrease) in cash and cash equivalents	(1,144		)	689
Net increase in cash and cash equivalents							773			416

Cash and cash equivalents – beginning of period	9,248			6,944			5,836			9,248
Cash and cash equivalents – end of period	$	8,104		$	7,633		$	6,609		$	9,664

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

No other new accounting pronouncements are expected to have a significant impact on our 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 nine~~ ~~months ended~~ ~~September 30, 2019~~ ~~and the~~ ~~three and nine~~ ~~months ended~~ ~~September 30, 2018~~:obligations:

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

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

$ 403
3
%
$
1,241
7
%
Revenue recognized at a point in time

11,988
97 %
15,442
93
%

$ 12,391
100 %
$
16,683
100
%


	Three Months Ended June 30, 2020				Three Months Ended June 30, 2019
(In thousands except percentages)	Revenues		Percent of Revenues		Revenues		Percent of Revenues
Revenue recognized over time	$	362	2	%	$	292	2	%
Revenue recognized at a point in time		15,634	98	%		14,752	98	%
	$	15,996	100	%	$	15,044	100	%

Nine Months Ended September 30, 2019
Nine Months Ended September 30, 2018
(In thousands except percentages)

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

$ 1,041
2
%
$
3,262
7
%
Revenue recognized at a point in time

41,370
98 %
43,395
93
%

$ 42,411
100 %
$
46,657
100
%


	Six Months Ended June 30, 2020				Six Months Ended June 30, 2019
(In thousands except percentages)	Revenues		Percent of Revenues		Revenues		Percent of Revenues
Revenue recognized over time	$	555	2	%	$	638	2	%
Revenue recognized at a point in time		31,870	98	%		29,382	98	%
	$	32,425	100	%	$	30,020	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)	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Contract assets, included in other current assets	$	6	$	—	$	4	$	2
Contract liabilities - advance customer payments	$	427	$	366	$	661	$	389
Contract liabilities - deferred warranty revenue	$	235	$	218	$	323	$	275

Changes in contract assets in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~the~~ ~~nine months ended September~~June 30, ~~2018~~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 0 impairment losses for contract assets in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 or ~~the~~ ~~nine months ended September~~June 30, ~~2018~~.2019.

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


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2019		2018			2019		2018	2020		2019		2020		2019
Amounts reclassified from beginning contract liabilities to revenue	$	342	$	39	$	401	$	262	$	55	$	443	$	95	$	216
Amounts reclassified from deferred warranty revenue		111		99	334		310			83		110		183		224
Total	$	453	$	138	$	735	$	572	$	138	$	553	$	278	$	440

4.5. MARKETABLE SECURITIES:

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


	September 30, 2019									June 30, 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	$	5,138	$	11	$	(2	)	$	5,147	$	5,789	$	60	$	—		$	5,849
Corporate debt securities and certificates of deposit	1,170		1		—			1,171		1,578		20		—			1,598
Asset backed securities	1,469		5		—			1,474		520		4		—			524
Marketable securities – short-term	$	7,777	$	17	$	(2	)	$	7,792	$	7,887	$	84	$	—		$	7,971
Long-Term
U.S. government and agency obligations	$	5,646	$	32	$	(1	)	$	5,677	$	6,807	$	105	$	—		$	6,912
Corporate debt securities and certificates of deposit	1,602		12		—			1,614		4,831		94		—			4,925
Asset backed securities	2,035		17		—			2,052		2,570		62		—			2,632
Equity security	42		7		—			49		42		—		(12		)	30
Marketable securities – long-term	$	9,325	$	68	$	(1	)	$	9,392	$	14,250	$	261	$	(12	)	$	14,499


	December 31, 2018									December 31, 2019
(In thousands)	Cost		Unrealized Gains		Unrealized Losses			Fair Value		Cost		Unrealized Gains		Unrealized Losses			Fair Value
Short-Term
U.S. government and agency obligations	$	3,377	$	—	$	(20	)	$	3,357	$	5,766	$	22	$	—		$	5,788
Corporate debt securities and certificates of deposit	1,787		3		(5		)	1,785		1,085		1		—			1,086
Asset backed securities	633		—		(4		)	629		1,417		4		—			1,421
Marketable securities – short-term	$	5,797	$	3	$	(29	)	$	5,771	$	8,268	$	27	$	—		$	8,295
Long-Term
U.S. government and agency obligations	$	6,114	$	10	$	(23	)	$	6,101	$	6,524	$	30	$	(1	)	$	6,553
Corporate debt securities and certificates of deposit	754		1		(3		)	752		3,004		14		—			3,018
Asset backed securities	3,422		2		(15		)	3,409		2,535		15		(1		)	2,549
Equity security	42		18		—			60		42		6		—			48
Marketable securities – long-term	$	10,332	$	31	$	(41	)	$	10,322	$	12,105	$	65	$	(2	)	$	12,168

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


	Fair Value Measurements at June 30, 2020 Using
(In thousands)	Balance June 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Marketable securities:
U.S. government and agency obligations	$	12,761	$	—	$	12,761	$	—
Corporate debt securities and certificates of deposit	6,523		—		6,523		—
Asset backed securities	3,156		—		3,156		—
Equity security	30		30		—		—
Total marketable securities	$	22,470	$	30	$	22,440	$	—

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

Balance
September 30,
2019

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

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Marketable securities:

U.S. government and agency obligations

$
10,824

$
—

$
10,824

$
—

Corporate debt securities and certificates of deposit

2,785

—

2,785

—

Asset backed securities

3,526

—

3,526

—

Equity security

49

49

—

—

Total marketable securities

$
17,184

$
49

$
17,135

$
—

Fair Value Measurements at
December 31, 2018 Using
(In thousands)

Balance
December 31,
2018

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

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Marketable securities:

U.S. government and agency obligations

$
9,458

$
—

$
9,458

$
—

Corporate debt securities and certificates of deposit

2,537

—

2,537

—

Asset backed securities

4,038

—

4,038

—

Equity security

60

60

—

—

Total marketable securities

$
16,093

$
60

$
16,033

$
—


	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	$	—

67. SHARE-BASED COMPENSATION:

We have 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 ~~September~~June 30, ~~2019~~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 ~~524,428~~468,104 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 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 again under the Employee Stock Incentive Plan for future grant.

Non-Employee Director Stock Plan

As of ~~September~~June 30, ~~2019~~,2020, there were ~~52,000~~44,000 shares of common stock reserved in the aggregate for issuance pursuant to future restricted share grants under our Non-Employee Director Stock Plan and ~~16,000~~12,000 shares of common stock reserved in the aggregate for issuance pursuant to outstanding stock option awards under our Non-Employee Director Stock Plan (which previously authorized the granting of stock options to non-employee directors). Under the terms of the plan, each non-employee director receives annual restricted share grants of 2,000 shares of our common stock on the date of each annual meeting at which such director is elected to serve on the board. The annual restricted share grants of common stock vest in 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~~2020 annual meeting, we issued a total of 8,000 shares of our common stock to our non-employee directors, which were restricted as specified in the Non-Employee Director Stock Plan. The shares granted at the 2020 annual meeting had an aggregate fair market value on the date of grant equal to ~~$138,000~~$226,720 (grant date fair value of ~~$17.26~~$28.34 per share). As of ~~September~~June 30, ~~2019, 2,000~~2020, none of these shares were vested. The aggregate fair value of the ~~6,000~~8,000 unvested shares based on the closing price of our common stock on ~~September~~June 30, ~~2019~~2020 was ~~$86,000.~~$258,000.

Stock Option Activity

The following is a summary of stock option activity in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~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	(21,050	)	8.23		(104,613	)	7.72
Expired	(5,750	)	10.83		—		—
Forfeited	(7,350	)	16.67		—		—
Outstanding, September 30, 2019	488,892		$	11.55
Outstanding, June 30, 2020					415,900		$	13.39

Exercisable, September 30, 2019	334,768		$	9.45
Exercisable, June 30, 2020					276,326		$	11.33

The intrinsic value of an option is the amount by which the market price of the underlying common stock exceeds the option's exercise price. For options outstanding at ~~September~~June 30, ~~2019~~2020, the weighted average remaining contractual term of all outstanding options was ~~3.3~~3.5 years and their aggregate intrinsic value was ~~$2.1~~$7.8 million. At ~~September~~June 30, ~~2019~~2020, the weighted average remaining contractual term of options that were exercisable was ~~2.6~~2.5 years and their aggregate intrinsic value was ~~$1.9~~$5.7 million. The aggregate intrinsic value of stock options exercised was $2.1 million in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~ ~~was $121,000.~~2020 and $57,000 in the six months ended June 30, 2019. We received proceeds from stock option exercises of ~~$173,000~~$256,000 in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~$452,000~~$59,000 in the ~~nine~~six months ended ~~September~~June 30, ~~2018. The aggregate fair value of~~2019. NaN stock options ~~that~~ vested in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~ ~~was $5,000.~~2020.

Restricted shares are granted under our Non-Employee Director Stock Plan. There were8,000 restricted shares granted in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020. . Restricted stock units are granted under our Employee Stock Incentive Plan. NaN restricted stock units were granted in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~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 ~~September~~June 30, ~~2019~~2020 was ~~$822,000.~~$2.3 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 ~~$105,000~~$102,000 in the~~nine~~ six months ended ~~September~~June 30, ~~2019~~.2020 and $77,000 in the six months ended June 30, 2019.

The following is a summary of activity in ~~non-vested~~ restricted shares and restricted stock units in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~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). ~~There~~NaN shares were ~~17,781 shares issued~~purchased under this plan in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~.2020 or the six months ended June 30, 2019. As of June 30, 2020, ~~As o~~f ~~September 30, 2019~~, 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 ~~September~~June 30, ~~2019~~2020 totaled ~~$244,000,~~$286,000, and included ~~$110,000~~$114,000 for stock options, ~~$21,000~~$25,000 for our Employee Stock Purchase Plan, ~~$78,000~~$101,000 for restricted stock units and ~~$35,000~~$46,000 for restricted shares. ~~Share-based~~Pre-tax share-based compensation expense in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 totaled $~~737,000~~,$558,000, and included $~~327,000~~$228,000 for stock options, $~~81,000~~$48,000 for our Employee Stock Purchase Plan, $~~231,000~~$202,000 for restricted stock units and $~~98,000~~$80,000 for restricted shares.

~~Share-based~~Pre-tax share-based compensation expense in the three months ended ~~September~~June 30, ~~2018~~2019 totaled ~~$217,000,~~$249,000, and included ~~$94,000~~$110,000 for stock options, $31,000 for our Employee Stock Purchase Plan, ~~$59,000~~$77,000 for restricted stock units and ~~$33,000~~$31,000 for restricted shares. ~~Share-based~~Pre-tax share-based compensation expense in the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 totaled $~~701,000~~,$493,000, and included $~~328,000~~$217,000 for stock options, $~~86,000~~$60,000 for our Employee Stock Purchase Plan, $~~176,000~~$153,000 for restricted stock units and $~~111,000~~$63,000 for restricted shares.

At ~~September~~June 30, ~~2019~~2020, the total unrecognized compensation cost related to non-vested share-based compensation arrangements was ~~$1.6~~$2.0 million and the related weighted average period over which such cost is expected to be recognized is ~~2.35~~2.5 years.

78. CHANGES IN STOCKHOLDERS’ EQUITY:

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

Three ~~months ended~~ ~~September~~ Months Ended June 30, ~~2019~~2020:

Common Stock
Accumulated
Other Comprehensive
Loss

Retained
Earnings
Total Stockholders’
Equity
(In thousands)
Shares

Amount

Balance, June 30, 2019
7,115

$
36,189

$
(1,518
)

$
23,256

$
57,927

Exercise of stock options
15

114

—

—

114
Share-based compensation
—

244

—

—

244

Issuance of common stock under Employee Stock Purchase Plan
18

203

—

—

203
Repurchase of common stock
(26 )

(353 )

—

—

(353 )
Other comprehensive loss, net of tax
—

—

(268
)

—

(268
)
Net loss
—

—

—

(353
)

(353
)
Balance, September 30, 2019
7,122

$
36,397

$
(1,786
)

$
22,903

$
57,514

~~Nine months ended~~ ~~September 30, 2019~~:

Common Stock
Accumulated
Other Comprehensive
Loss

Retained
Earnings
Total Stockholders’
Equity
(In thousands) Shares Amount
Balance, December 31, 2018 7,101 $ 35,637 $ (1,690 ) $ 22,264 $ 56,211
Increase related to adoption of ASU 2016-02 — — — 33 33
Exercise of stock options
21 173 — — 173
Share issuances for director compensation
8

—

—

—

—
Share-based compensation — 737 — — 737
Issuance of common stock under Employee Stock Purchase Plan
18

203

—

—

203
Repurchase of common stock
(26 )

(353 )

—

—

(353 )
Other comprehensive loss, net of tax — — (96 ) — (96 )
Net income — — — 606 606
Balance, September 30, 2019 7,122 $ 36,397 $ (1,786 ) $ 22,903 $ 57,514

	Common Stock					Accumulated Other Comprehensive Loss			Retained Earnings		Total Stockholders’ Equity
(In thousands)	Shares		Amount			Accumulated Other Comprehensive Loss			Retained Earnings		Total Stockholders’ Equity
Balance, March 31, 2020	7,165		$	37,016		$	(1,896	)	$	23,915	$	59,035
Exercise of stock options, net of shares exchanged as payment	75			171			—			—		171
Tax payments for shares withheld related to stock option exercises	(16	)		(420	)		—			—		(420	)
Share issuances for director compensation	8			—			—			—		—
Share-based compensation	—			286			—			—		286
Other comprehensive income, net of tax	—			—			250			—		250
Net income	—			—			—			1,633		1,633
Balance, June 30, 2020	7,232		$	37,053		$	(1,646	)	$	25,548	$	60,955

~~Three months ended~~ ~~September~~Six Months Ended June 30, ~~2018~~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, net of shares exchanged as payment	85			256			—			—		256
Tax payments for shares withheld related to stock option exercises	(16	)		(420	)		—			—		(420	)
Share issuances for director compensation	8			—			—			—		—
Share-based compensation	—			558			—			—		558
Other comprehensive loss, net of tax	—			—			(240	)		—		(240	)
Net income	—			—			—			2,477		2,477
Balance, June 30, 2020	7,232		$	37,053		$	(1,646	)	$	25,548	$	60,955

Common Stock
Accumulated
Other Comprehensive
Loss

Retained
Earnings
Total Stockholders’
Equity
(In thousands)
Shares

Amount

Balance, June 30, 2018
7,024

$
34,815

$
(1,683
)

$
20,004

$
53,136

Exercise of stock options
24

201

—

—

201

Share-based compensation
—

217

—

—

217
Issuance of common stock under Employee Stock Purchase Plan
16

219

—

—

219
Other comprehensive loss, net of tax
—

—

(50
)

—

(50
)
Net income
—

—

—

1,067

1,067
Balance, September 30, 2018
7,064

$
35,452

$
(1,733
)

$
21,071

$
54,790

~~Nine~~ ~~months ended~~ ~~September~~Three Months Ended June 30, ~~2018~~2019:

	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, 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, 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 and vesting of restricted stock units
60 452 — — 452
Share issuances for director compensation
8

—

—

—

—
Share-based compensation — 701 — — 701
Issuance of common stock under Employee Stock Purchase Plan
16

219

—

—

219
Other comprehensive loss, net of tax — — (280 ) — (280 )
Net income — — — 1,634 1,634
Balance, September 30, 2018 7,064 $ 35,452 $ (1,733 ) $ 21,071 $ 54,790

	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, 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

Excess and obsolete inventories were written down by $667,000 at June 30, 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 $2.6 million at June 30, 2020 and $2.4 million at 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 is likely 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 the FASB's Accounting Standards Codification Topic 350 when analyzing goodwill and intangibles for possible impairment, including the following:

Conditions in the global SMT and semiconductor capital equipment markets (including conditions resulting from the Covid-19 pandemic);
Our revenue and profitability in the six months ended June 30, 2020;
Our backlog at June 30, 2020, which stood at $24.8 million;
Our forecasts for revenue and profitability for the remainder of 2020 and beyond;
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 June 30, 2020.

Intangible assets ~~consist~~consisted of the following:

September 30, 2019

December 31, 2018
(In thousands)

Gross
Carrying
Amount

Accumulated
Amortization

Net

Gross
Carrying
Amount

Accumulated
Amortization

Net
Patents

$
2,842

$
(2,630
)

$
212

$
2,754

$
(2,533
)

$
221

Software

206

(163
)

43

206

(141
)

65

Marketing assets and customer relationships

101

(61
)

40

101

(54
)

47

Non-compete agreements

101

(101
)

—

101

(101
)

—

$
3,250

$
(2,955
)

$
295

$
3,162

$
(2,829
)

$
333


	June 30, 2020							December 31, 2019
(In thousands)	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Patents	$	2,939	$	(2,735	)	$	204	$	2,898	$	(2,662	)	$	236
Software	206		(185		)	21		206		(170		)	36
Marketing assets and customer relationships	101		(68		)	33		101		(63		)	38
	$	3,246	$	(2,988	)	$	258	$	3,205	$	(2,895	)	$	310

Amortization expense ~~for our intangible assets~~ in the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~the~~ ~~three and nine~~ ~~months ended~~ ~~September~~ June 30, ~~2018~~2019 was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2019		2018		2019		2018		2020		2019		2020		2019
Patents	$	33	$	28	$	97	$	84	$	35	$	33	$	73	$	64
Software		7		8		22		23		7		8		15		15
Marketing assets and customer relationships		3		2		7		7		3		2		5		4
Non-compete agreements		—		—		—		5
	$	43	$	38	$	126	$	119	$	45	$	43	$	93	$	83

~~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: ~~$42,000~~ $85,000 for the remainder of ~~2019~~2020; ~~$149,000~~$108,000 in ~~2020~~2021; ~~$74,000~~$50,000 in ~~2021~~2022; ~~$19,000~~$13,000 in ~~2022~~2023; ~~$9,000 in~~ ~~2023~~; and $2,000 in 2024.

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

In the ~~nine~~six months ended ~~September~~June 30, ~~2019~~,2020, sales to significant customer A accounted for ~~12%~~16% of our total ~~revenue.~~revenues. As of ~~September~~June 30, ~~2019~~,2020, accounts receivable from significant customer A ~~were~~was $~~1.5~~2.2 million.

~~11.~~12. NET INCOME ~~(LOSS)~~ PER SHARE:

~~Basic net~~Net income ~~(loss)~~ per basic share ~~for a period~~ is computed by dividing net income ~~(loss)~~ 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. All common equivalent shares were excluded from the calculation of net loss per diluted share due to their anti-dilutive effect. Common equivalent shares are excluded from the calculation of net income per diluted share if their effect is anti-dilutive. The components of net income ~~(loss)~~ per basic and diluted share were as follows:

(In thousands except per share amounts)

Net Loss

Weighted Average
Shares Outstanding

Per Share Amount
Three Months Ended September 30, 2019

Basic

$
(353
)

7,117

$
(0.05
)
Dilutive effect of common equivalent shares

—

—

—
Dilutive

$
(353
)

7,117

$
(0.05
)

(In thousands except per share amounts)	Net Income		Weighted Average Shares Outstanding	Per Share Amount
Three Months Ended June 30, 2020
Basic	$	1,633	7,198	$	0.23
Dilutive effect of common equivalent shares	—		249	(0.01		)
Dilutive	$	1,633	7,447	$	0.22

(In thousands except per share amounts)	Net Income		Weighted Average Shares Outstanding	Per Share Amount
Three Months Ended June 30, 2019
Basic	$	464	7,106	$	0.07
Dilutive effect of common equivalent shares	—		190	(0.01		)
Dilutive	$	464	7,296	$	0.06

(In thousands except per share amounts)

Net Income

Weighted Average
Shares Outstanding

Per Share Amount
Three Months Ended September 30, 2018

Basic

$
1,067

7,041

$
0.15
Dilutive effect of common equivalent shares

—

258

—
Dilutive

$
1,067

7,299

$
0.15

(In thousands except per share amounts)

Net Income

Weighted Average
Shares Outstanding

Per Share Amount
Nine Months Ended September 30, 2019

Basic

$
606

7,108

$
0.09
Dilutive effect of common equivalent shares

—

137

(0.01
)
Dilutive

$
606

7,245

$
0.08

(In thousands except per share amounts)

Net Income

Weighted Average
Shares Outstanding

Per Share Amount
Nine Months Ended September 30, 2018

Basic

$
1,634

7,012

$
0.23
Dilutive effect of common equivalent shares

—

164

—
Dilutive

$
1,634

7,176

$
0.23

(In thousands except per share amounts)	Net Income		Weighted Average Shares Outstanding	Per Share Amount
Six Months Ended June 30, 2020
Basic	$	2,477	7,177	$	0.35
Dilutive effect of common equivalent shares	—		230	(0.02		)
Dilutive	$	2,477	7,407	$	0.33

(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

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~~share due to their anti-dilutive effect were as follows: ~~567,000~~34,000 shares in the three months ended ~~September~~June 30, ~~2019~~2020; ~~309,000~~ 89,000 shares in the ~~nine~~six months ended ~~September~~June 30, 2020; 200,000 shares in the three months ended June 30, 2019;and~~118,000~~180,000 shares in the ~~three~~six months ended ~~September~~June 30, ~~2018~~; ~~and~~ ~~285,000~~ ~~shares in the~~ ~~nine months ended September 30, 2018~~2019.

~~12.~~13. OTHER COMPREHENSIVE ~~LOSS:~~INCOME (LOSS):

Reclassification adjustments are made to avoid double counting for items included in other comprehensive ~~loss~~income (loss) that are also recorded as part of net ~~income (loss). Reclassifications~~income. There were 0 reclassification adjustments in the three and ~~taxes~~six months ended June 30, 2020 or the three and six months ended June 30, 2019. Taxes related to items of other comprehensive ~~loss~~income (loss) are as ~~follows~~:follows:

Three Months Ended September 30, 2019 Three Months Ended September 30, 2018
(In thousands) Before Tax
Tax Effect
Net of Tax Amount
Before Tax
Tax Effect
Net of Tax Amount
Foreign currency translation adjustments $ (269 ) $ — $ (269 ) $ (50 ) $ — $ (50 )
Net changes related to available-for-sale securities:

Unrealized gains
1 — 1 3 — 3
Reclassifications included in interest income and other
—
—
— (3 ) —
(3 )
Net changes related to available-for-sale securities 1 — 1 — — —
Other comprehensive loss $ (268 ) $ — $ (268 ) $ (50 ) $ — $ (50 )

	Three Months Ended June 30, 2020								Three Months Ended June 30, 2019
(In thousands)	Before Tax		Tax Effect				Net of Tax Amount		Before Tax			Tax Effect			Net of Tax Amount
Foreign currency translation adjustments	$	154	$	—			$	154	$	(17	)	$	—		$	(17	)
Unrealized gains on available-for-sale securities		121		(25	)	��		96		70			(14	)		56
Other comprehensive income (loss)	$	275	$	(25	)		$	250	$	53		$	(14	)	$	39

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

Net of Tax Amount
Foreign currency translation adjustments $ (199 ) $ — $ (199 ) $ (252 )
$ —
$ (252
)
Net changes related to available-for-sale securities:

Unrealized gains (losses)
129 (26 ) 103 (33 ) 8
(25
)
Reclassifications included in interest income and other —
—
—
(3 ) —
(3
)
Net changes related to available-for-sale securities 129
(26
) 103
(36
) 8
(28
)
Other comprehensive loss $ (70 ) $ (26 ) $ (96
) $ (288
) $ 8
$ (280 )

	Six Months Ended June 30, 2020									Six Months Ended June 30, 2019
(In thousands)	Before Tax			Tax Effect			Net of Tax Amount			Before Tax		Tax Effect			Net of Tax Amount
Foreign currency translation adjustments	$	(446	)	$	—		$	(446	)	$	70	$	—		$	70
Unrealized gains on available-for-sale securities		261			(55	)		206			128		(26	)		102
Other comprehensive income (loss)	$	(185	)	$	(55	)	$	(240	)	$	198	$	(26	)	$	172

At ~~September~~June 30, ~~2019~~2020 and ~~September~~June 30, ~~2018~~,2019, 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 (loss) for the nine months ended September 30, 2019

(199
)

103
(96
)
Balances at September 30, 2019

$
(1,848
)

$
62

$
(1,786
)

(In thousands)	Foreign Currency Translation Adjustments			Available- for-Sale Securities		Accumulated Other Comprehensive Loss
Balances at December 31, 2019	$	(1,475	)	$	69	$	(1,406	)
Other comprehensive income (loss) for the six months ended June 30, 2020	(446		)	206		(240		)
Balances at June 30, 2020	$	(1,921	)	$	275	$	(1,646	)

(In thousands)

Foreign
Currency
Translation
Adjustments

Available- for-Sale
Securities

Accumulated
Other
Comprehensive
Loss
Balances at December 31, 2017

$
(1,394
)

$
(15
)

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

(44 )
(44 )
Other comprehensive loss for the nine months ended September 30, 2018

(252
)

(25
)

(277
)
Amounts reclassified from accumulated other comprehensive loss
—

(3)

(3)
Total change for the period

(252
)

(72
)

(324
)
Balances at September 30, 2018

$
(1,646
)

$
(87
)

$
(1,733
)

(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	)

1415. OPERATING LEASES:

~~We determine if an arrangement is a lease at inception.~~

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

In February 2020, we finalized an extension to our lease ~~a 61,208~~for our existing 19,805 square foot ~~mixed-use~~mixed office and warehouse facility in ~~Golden Valley, Minnesota.~~ Singapore, which serves as a sales, development and final assembly and integration facility for our inspection and metrology system products.The lease ~~has a term~~runs from the expiration date of ~~91 months~~our old lease in July 2020 through July 24, 2023. The new lease does not contain any incentives or renewal options. Rent and ~~expires on~~facility operating costs under the new lease are expected to remain unchanged from the old lease that expired in July 31, 2026. The lease contains a rent escalation clause, 1 three year renewal option and incentives. Rental expense, including the effects of lease incentives, is recognized on a straight-line basis over the term of the lease. We are also required to pay insurance, property taxes and other operating expenses related to the leased facility, which are not fixed or tied to an index. 2020.

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

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

Three Months Ended

Nine Months Ended
Component (in thousands)
September 30, 2019

September 30, 2019

Operating lease cost
$ 179

$ 538
Variable lease cost

67

202
Short-term lease cost

2

5
Total
$ 248

$ 745

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

At ~~September~~June 30, ~~2019~~,2020, the future maturities of lease liabilities are as follows:


Twelve months ending September 30,	(In thousands)
2020	$	801
Twelve months ending June 30,			(In thousands)
2021	607		$	968
2022	622		985
2023	638		993
2024	654		704
2025 and thereafter	1,242
2025			666
2026 and thereafter			740
Total lease payments		4,564		5,056
Less: amount representing interest	700		688
Present value of operating lease liabilities	$	3,864	$	4,368

At ~~September~~June 30, ~~2019~~,2020, the weighted average remaining term for our operating leases is ~~6.24~~5.33 years, and the weighted average discount rate applied to our operating leases was ~~5.74%~~5.17%.

~~Cash paid for amounts included~~Operating lease liabilities were increased by $920,000 in the ~~measurement of operating lease liabilities in the~~ ~~nine~~six months ended ~~September~~June 30, ~~2019~~ ~~was $389,000.~~2020 for ROU assets related to the extended lease for our Singapore facility and a new small leased facility in Taiwan. Incentives from the landlord recorded as leasehold improvements in the ~~nine~~six months ended ~~September~~June 30, 2019 were ~~$783,000.~~$691,000.

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

Year ending December 31,
(In thousands)
2019
$
1,095

2020
1,298

2021
1,049

2022
1,064
2023
1,080

2024 & Thereafter
3,049
Total
$
8,635

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

FORWARD LOOKING STATEMENTS:

The following management’s discussion and analysis of the financial condition and results of operations of CyberOptics Corporation 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 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 economic crisis resulting from the Covid-19 pandemic on our customers and suppliers, the market for our products 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; (v)~~for semiconductor advanced packaging inspection and metrology (ix) our assessment of trends in ~~the economy in general and,~~ the surface mount technology ("SMT") and semiconductor capital equipment ~~markets in particular,~~markets; and ~~their impact on the markets for our products; and (vi)~~(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.

RESULTS OF OPERATIONS

General

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 ~~strategy~~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 our3D sensor technologies in the SMT and semiconductor ~~capital equipment~~industries to deliver profitable growth. A key element of our strategy is the continued development and sale of high precision 3D sensors and system products based on our proprietary Multi-Reflection Suppression ("MRS") technology. We believe that our MRS technology is a breakthrough 3D optical technology for high-end inspection and metrology with the potential to significantly expand our markets. AAnother 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 and nine months ended September 30,~~ 2019 were affected by the cyclical, industry-wide slowdown in demand for SMT and semiconductor capital equipment as well as uncertainty ~~surrounding~~relating to the global trade environment. We believe that the three months ended September 30, 2019 marked the trough of the downturn in the SMT and semiconductor capital equipment markets, and that industry conditions ~~will strengthen moving forward.~~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,~~metrology. We believe that our 3D MRS-enabled sensor and ~~we believe MRS has~~system products and our WaferSense® family products have the potential to expand our presence in the markets for SMT and semiconductor capital equipment.

Manufacturing yield challenges as electronics and semiconductors become more complex are driving the need for more precise inspection and metrology. We believe 3D3D inspection and metrology represent high-growth segments in both the SMT and semiconductor capital equipment markets. 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 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:

•

Our SQSQ3000~~3000~~™ Multi-Function inspection and SQ~~3000~~™ 3~~D CMM~~measurement machines (the SQ3000 and SQ3000™ 3D CMM) for AOI, ~~systems,~~Solder Paste Inspection ("SPI") and coordinate measurement ("CMM") applications, which are designed to expand our presence in ~~SMT and semiconductor~~ markets requiring high precision ~~measurement~~inspection and ~~inspection.~~metrology. In these markets, identifying defects has become highly challenging and critical due to smaller semiconductor and ~~more complex~~ electronics packaging and increasing component density on circuit boards. ~~The SQ3000~~™ 3~~D CMM AOI system combines automated optical inspection~~In our view, the 3D MRS sensor technology used in our products is uniquely suited for many of these applications because of its ability to offer microscopic image quality and ~~metrology functionality in a single product. Manufacturers in a variety of industries, including SMT and semiconductor manufacturers, can use the SQ3000~~superior measurement performance at production line speeds.™ 3~~D CMM AOI system as an in-line or off-line metrology tool to help solve complex manufacturing and product quality challenges.~~


•·	~~Our high-precision~~ 3~~D MRS sensors, which we sell to original equipment manufacturers ("OEMs") and system integrators, that produce inspection and metrology equipment for the SMT and semiconductor industries.~~


•	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 product in the first quarter of 2020.

Our new MRS-enabled WX3000™ metrology and inspection system for wafer-level and advanced packing applications, which incorporates our next generation ultra-high resolution three~~three~~ micron pixel 33D NanoResolution MRS ~~sensor is capable of measuring feature sizes down to~~ 25 ~~microns accurately~~sensor. The WX3000 performs 100% 3D and 2D inspection and metrology simultaneously at high speed and delivers through-put of more than 25 wafers per hour. We believe the WX3000 performs two to three times faster than alternate technologies at data processing speeds ~~and~~in excess of 75 million 3D data points per second. The WX3000 is suitable for many semiconductor wafer level and advanced packaging inspection and metrology ~~applications.~~applications for features down to 25-micron. We ~~are targeting~~ ~~one~~ ~~micron,~~ ~~three-sigma accuracy, at speeds~~anticipate that ~~would inspect more than~~ 25~~300~~-millimeter wafers in an hour. We have received initial purchase orders for our 3D NanoResolution MRS sensor from three OEM customers, and are currently demonstrating this technology to other OEMs, system integrators and directly to semiconductor manufacturers. We believe sales of 3D3D MRS-enabled sensors and systems for semiconductor wafer level and advanced packaging inspection and metrology applications will represent compelling long-term growth opportunities.

~~While we are optimistic about the future sales of MRS-based~~Revenue from our MRS based products, ~~revenue from all MRS-based products totaled~~including 3D AOI systems and high precision 3D MRS sensors, increased by $4.6 million or 45% to $14.9 million in the ~~nine~~six months ended ~~September~~June 30, ~~2019, a decrease of approximately 1%~~2020, from ~~$15.0~~$10.3 million in the ~~nine~~six months ended ~~September~~June 30, ~~2018. Sales of~~ 3~~D MRS sensors decreased 25% on a year-over-year basis in the~~ ~~nine months ended September 30, 2019~~2019. We anticipate we will continue to ~~$4.1 million, as OEM customers reduced their orders due to sluggish market conditions in the global SMT and semiconductor capital equipment markets. Despite the weak market conditions,~~increase sales of 3~~D MRS-enabled SQ3000~~ ~~and~~ SQ~~3000~~™ 3~~D CMM~~ ~~AOI systems increased 14%~~products based on ~~a year-over-year basis in the~~ ~~nine months ended September 30, 2019~~ ~~to $10.4 million. In the future, 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 for micro LED, 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 of inspection and metrology system products 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.

Prior to the end of the second quarter of 2020, we received a $2.5 million order for SQ3000 Multi-Function systems for Micro LED applications. This order is scheduled to be recognized as revenue in the third quarter of 2020. Additional micro LED-related orders are anticipated during the second half of 2020. Our order backlog was ~~$14.4 million~~ at ~~September 30, 2019, up from $13.0~~$24.8 million at June 30, ~~2019, but down~~2020, unchanged from ~~$19.7~~March 31, 2020, and up significantly from $13.0 million at ~~September~~June 30, ~~2018.~~2019. ~~Our backlog at September 30, 2019 includes a large order for~~ 3~~D MRS sensors from an existing OEM customer which are scheduled mostly for delivery after~~ ~~2019~~. We are forecasting ~~total~~ sales of ~~$13.5~~$19.5 to ~~$15.0~~$21.5 million for the ~~fourth~~third quarter of ~~2019~~2020.~~, down~~ Our forecast for the third quarter of 2020 includes $4.0 million of sales from ~~$18.1~~our existing backlog of MX600 memory module inspection systems. We believe that demand in the 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. 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.

Impact from Covid-19

In December 2019, a novel strain of coronavirus ("Covid-19") was first identified, and in March 2020, the World Health Organization categorized Covid-19 as a pandemic. The Covid-19 pandemic is affecting our customers, suppliers, service providers and employees, and the ultimate impacts of Covid-19 on our business, results of operations, liquidity and prospects are not fully known at this time. However, the Covid-19 outbreak has had a relatively minimal impact on our business to date. Our revenues increased by 8% to $32.4 million in the ~~fourth~~first six months of 2020, from $30.0 million in the first six months of 2019. We are forecasting revenues of $19.5 to $21.5 million for the third quarter of ~~2018,~~ ~~but up~~2020, a significant increase from $12.4 million in the third quarter of 2019. WeHowever, our forecast could change if the Covid-19 pandemic worsens, or if unforeseen events related to the pandemic occur. The most significant impacts on our business from the Covid-19 pandemic include the following: ~~believe that conditions in the SMT and semiconductor capital equipment markets will strengthen as we progress through 2020.~~

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

·	Sales of some products, mainly our SQ3000 Multi-Function inspection and measurement systems and MX memory module inspection products, require customer acceptance due to performance or other criteria that is considered more than a formality. Many of our customer’s factories have remained open during the Covid-19 pandemic because they are deemed to be essential under government shelter-in-place mandates. Approximately $1.5 million of customer acceptances for SQ3000 Multi-Function inspection systems were pushed out to the third quarter of 2020 because of travel restrictions and the inability to gain access to customers' factories due to quarantine measures. None of the affected orders were cancelled, and all are expected to be recorded as revenue in the third quarter of 2020. Continuing or new global travel restrictions and quarantine measures could hinder our ability to obtain customer acceptances for some of our products in a timely manner, and therefore impact the timing of revenue recognition.

·	Total operating expenses in the second quarter of 2020 benefitted by approximately $276,000 from a jobs support program implemented by the government of Singapore. In addition, travel, trade show and other costs were reduced in the second quarter of 2020 due to the Covid-19 pandemic. We anticipate that operating expenses in the third quarter of 2020 will increase, and be comparable to the level in the first quarter of 2020. The anticipated increase is due to the phase-out of the Singapore jobs support program, and our expectation that travel, trade shows and other costs will return to more normal levels in the third quarter of 2020.

·	We have experienced some supply disruptions due to the Covid-19 pandemic, mainly from suppliers not deemed essential by shelter-in-place mandates in certain countries. Key supply chain disruptions have been resolved to date. However, supply chain disruptions could increase significantly if the pandemic worsens and continues for an extended period of time. To date, our on-hand inventories have been sufficient to enable us to mitigate any supply disruptions with minimal impact on our sales or ability to service customers. We presently do not expect that supply chain disruptions will have a significant impact on our revenue in the third quarter of 2020.

We currently do not anticipate any significant credit losses or asset impairments resulting from the Covid-19 pandemic. As of June 30, 2020, our available balances of cash and marketable securities totaled $29.1 million. 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. However, 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.

~~25.3~~ ~~million at~~

~~September 30, 2019~~CARES Act.

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

Singapore Jobs Support Program

As stated above, the Singapore Government implemented a jobs support program in 2020 that is intended to support businesses and encourage retention of employees during the period of economic uncertainty caused by the Covid-19 pandemic. Under the jobs support program, the Singapore Government will co-fund a portion of the gross monthly wages paid to local employees. The program is presently scheduled to end in August 2020. We anticipate that the Singapore jobs support program will reduce operating expenses in the third quarter of 2020 by approximately $50,000.

Revenues

Our revenues ~~decreased~~increased by 266% to $~~12.4~~16.0 million in the three months ended ~~September~~June 30, ~~2019~~,2020, from $~~16.7~~15.0 million in the three months ended ~~September~~June 30, ~~2018~~. 2019.Our revenues ~~decreased~~increased by 9%8% to ~~$42.4~~$32.4 million in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020, from ~~$46.7~~$30.0 million in the ~~nine~~six months ended ~~September~~June 30, ~~2018~~.2019. The following table sets forth revenues by product line for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019:

	Three Months Ended September 30,								Nine Months Ended September 30,								Three Months Ended June 30,								Six Months Ended June 30,
(In thousands)	2019		2018		% Change				2019		2018		% Change				2020		2019		% Change				2020		2019		% Change
High Precision 3D and 2D Sensors	$	3,170	$	5,388		(41	)	%	$	8,923	$	15,696		(43	)	%
High Precision 3D and 2D Sensors																	$	4,745	$	2,004		137		%	$	8,867	$	5,753		54		%
Inspection and Metrology Systems																		7,661		9,918		(23	)	%		16,022		17,009		(6	)	%
Semiconductor Sensors		3,676		3,463		6		%		10,934		10,564		4		%		3,590		3,122		15		%		7,536		7,258		4		%
Inspection and Metrology Systems		5,545		7,832		(29	)	%		22,554		20,397		11		%
Total	$	12,391	$	16,683		(26	)	%	$	42,411	$	46,657		(9	)	%	$	15,996	$	15,044		6		%	$	32,425	$	30,020		8		%

Revenues from sales of high precision 3D and 2D2D sensors increased ~~decreased~~by $~~2.2~~$2.7 million or 41137% to $~~3.2~~$4.7 million in the three months ended ~~September~~June 30, ~~2019~~,2020, from $~~5.4~~$2.0 million in the three months ended ~~September~~June 30, ~~2018~~2019. Revenues from sales of high precision 3D3D and 2D2D sensors ~~decreased~~increased by $~~6.8~~$3.1 million or 43%54% to $~~8.9~~ ~~million~~ ~~in the~~ ~~nine months ended September 30, 2019, from $15.7~~$8.9 million in the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2020, from $5.8 million in the six months ended June 30, 2019. The increases in both periods were primarily due to higher sales of 3D MRS-enabled sensors. . ~~OEM customers reduced their purchases~~Sales of high precision 3~~D and~~ 2D3D MRS-enabled sensors increased by $1.9 million or 170% to $3.0 million in the three ~~and nine~~ months ended ~~September~~June 30, ~~2019~~2020 from $1.1 million in ~~response~~the three months ended June 30, 2019. Sales of high precision 3D MRS-enabled sensors increased by $3.2 million or 113% to ~~weak~~$6.0 million in the six months ended June 30, 2020 from $2.8 million in the six months ended June 30, 2019.The increase was due to improving conditions in the global ~~SMT and~~ semiconductor capital equipment ~~markets.~~market. Sales of high precision 3D3D and 2D2D sensors are dependent on the success of our OEM customers selling products that incorporate our sensors. ~~Due to ongoing market weakness~~, our 3D and 2D sensor sales are forecasted to decline in the fourth quarter of 2019, both sequentially and on a year-over-year basis. However, we believe sales of 3D MRS-enabled sensors will rebound, starting in early 2020. We believe sales of older 2D legacy sensors will also rebound, but recovery may not happen until later in 2020. We believe sales of our new 3D MRS enabled sensors, including our next generation ultra-high resolution three micron pixel 3D NanoResolution MRS sensor, will represent an increasing percentage of our total high precision 3D3D and 2D2D sensor sales in the future. ~~Quarterly~~S ~~sales~~ales of high precision 3D3D and 2D2D sensors, including 3~~D MRS~~3D-MRS enabled sensors, are prone to significant quarterly fluctuations due to variations in market ~~demand.~~demand and customer inventory levels. Revenues from sales of high precision 3D and 2D sensors are expected to decline modestly on a sequential basis in the third quarter of 2020.

Revenues from sales of inspection and metrology systems decreased by $2.3million or 23% to $7.7million in thethree months ended June 30, 2020, from $9.9 million in the three months ended June 30, 2019. Revenues from sales of inspection and metrology systems decreased by $1.0 million or 6% to $16.0 million in the six months ended June 30, 2020, from $17.0 million in the six months ended June 30, 2019. The revenue decreases were mainly due to lower sales of legacy products and 2D MX600 memory module inspection systems. Sales of SQ3000™ Multi-Function systems increased modestly to $4.7 million in the three months ended June 30, 2020, from $4.6 million in the three months ended June 30, 2019. Sales of SQ3000™ Multi-Function systems increased by $873,000 or 12% to $8.0 million in the six months ended June 30, 2020, from $7.1 million in the six months ended June 30, 2019. Sales of SQ3000™ Multi-Function systems in the three months ended June 30, 2020 were negatively impacted by delays in obtaining $1.5 million of customers acceptances due to travel restrictions and the inability to gain access to customer's factories because of the Covid-19 pandemic.

We believe the increase in sales of SQ3000™ Multi-Function systems in the first half of 2020 was due to the competitive advantages offered by ourSQ3000™ Multi-Function system products, and resulted from many companies 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 systems is expected to result in an industry-wide 20% compound annual rate of growth in global sales of 3D AOI systems through 2025. In addition, we believe the demonstrated advantages of the SQ3000™ Multi-Function system has allowed us to attain first-mover status in the high growth micro-LED inspection and metrology market. 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 inspection and metrology systems are expected to increase significantly in the third quarter of 2020, both sequentially and on a year-over-year basis.

Revenues from sales of semiconductor sensors, principally our ~~WaferSense product~~WaferSense® line of products, increased by $$468,000~~213,000~~ or 6%15% to $$3.6 ~~3.7~~million in the three months ended ~~September~~June 30, ~~2019~~2020, from $$3.1 ~~3.5~~million in the three months ended ~~September~~June 30, ~~2018~~2019. ~~Revenue~~Revenues from sales of semiconductor sensors increased by $~~370,000~~$278,000 or 4%4% to $~~10.9~~$7.5 million in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~,2020, from $~~10.6~~$7.3 million in the ~~nine~~six months ended ~~September~~June 30, ~~2018. We believe higher sales of semiconductor sensors in the three months ended September 30, 2019 are~~2019. The revenue increases were due to ~~initial signs~~ growing acceptance of ~~improvement in the global~~our WaferSense® products as important productivity enhancement tools by semiconductor manufacturers, and improved account penetration at major semiconductor manufacturers and capital equipment ~~market, particularly with respect to foundry customers.~~ In the nine months ended September 30, 2019, higher sales of semiconductor sensors are due to the recent improvement in market conditions, and incremental sales of WaferSense products in the first quarter of 2019 to Asian semiconductor manufacturing facilities commissioned in 2018. Sales of semiconductor sensors are forecasted to increase by more than 10% in the fourth quarter of ~~2019~~ ~~on a year-over-year basis.~~suppliers. Over the ~~longer-term,~~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~~ ~~decreased~~ ~~by $2.3~~ ~~million or~~ 29~~% to $5.5~~ ~~million~~semiconductor sensors in the ~~three months ended September 30, 2019, from $7.8~~ ~~million in the~~ ~~three months ended September 30, 2018~~. ~~Revenues from sales of inspection and metrology systems~~ ~~increased~~ ~~by $2.2~~ ~~million or~~ 11~~% to $22.6~~ ~~million in the~~ ~~nine months ended September 30, 2019, from $20.4~~ ~~million in the~~ ~~nine months ended September 30, 2018~~. The revenue decrease in the three months ended September 30, 2019 was caused by sluggish market conditions in the global SMT and semiconductor capital equipment markets, resulting in lower year-over-year sales of both MRS-enabled SQ3000 3D AOI systems and legacy inspection systems. ~~The revenue increase in the nine months ended September 30, 2019 resulted from higher sales of MRS-enabled SQ3000~~3~~D AOI systems~~ ~~and sales of MX600~~ ~~memory module inspection systems~~. ~~Sales of MRS-enabled SQ3000~~ ~~3D AOI systems increased by $1.2~~ ~~million~~ ~~or 14% to $10.4 million in the~~ ~~nine months ended September 30, 2019, when compared to the nine months ended September 30, 2018. Strong year-over-year sales growth is forecasted for~~ ~~MRS-enabled SQ3000 3D AOI systems in the fourth~~third quarter of ~~2019, due in part~~2020 are forecasted to ~~the competitive advantages offered by our MRS technology.~~ S~~ales of MX600~~ ~~memory module inspection systems were approximately $600,000~~grow modestly on both a quarterly sequential and ~~$3.3 million in the~~ ~~three and nine~~ ~~months ended~~ ~~September 30, 2019, respectively. There were no sales of MX600~~ ~~memory module inspection systems in the~~ ~~three and nine~~ ~~months ended~~ ~~September 30, 2018~~.~~Sales of legacy~~ 2~~D AOI and solder paste inspection systems were lower in the~~ ~~three~~ ~~and~~ ~~nine months ended September 30, 2019, when compared to the~~ ~~three~~ ~~and~~ ~~nine months ended September 30, 2018. Despite the anticipated sales growth for MRS-enabled SQ3000 AOI systems, slow sales of legacy products are expected to result in lower~~ year-over-year ~~sales of inspection and metrology systems in this year's fourth quarter.~~basis.

~~We believe a growing number of companies are transitioning from~~ Export rev2~~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 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~~enues totaled $~~9.6~~$13.4 million or 77%84% of our total revenues in the three months ended ~~September~~June 30, ~~2019~~,2020, compared to $~~11.9~~$10.9 million or 71%73% of total revenues in the three months ended ~~September~~June 30, ~~2018~~.2019. Export revenues totaled $~~31.1~~25.2 million or 7378% of our total revenues in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020, compared to $~~33.4~~$21.5 million or 72%72% of total revenues in the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019. ~~Export revenue as a percentage of total revenue was higher~~ ~~in the~~ ~~three months ended September 30, 2019, when compared to the~~ ~~three months ended September 30, 2018, primarily due to lower sales of general industrial metrology systems and services, which are primarily sold in the United States.~~ ~~There was no significant change~~The increase in export revenues as a percentage of total revenues in the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020, when compared to the ~~nine~~three and six months ended ~~September~~June 30, ~~2018~~2019, was due to lower domestic sales resulting from travel restrictions and quarantine measures related to Covid-19.

Cost of revenues ~~decreased~~increased by ~~$2.4~~$227,000 or 3% to $8.7 million in the three months ended June 30, 2020, from $8.5 million in the three months ended June 30, 2019. Cost of revenues increased by $1.4 or 269% to $~~6.9~~$17.8 million in the ~~three~~six months ended ~~September~~June 30, ~~2019~~,2020, from $~~9.2~~$16.4 million in the ~~three~~six months ended ~~September~~June 30, ~~2018~~2019. ~~. Cost of revenues decreased by $2.4 million or 10% to $23.3million in the nine months ended September 30, 2019, from $25.7 million in the nine months ended September 30, 2018.~~ The de~~crease~~increase in cost of revenues in both periods ~~was~~were mainly due to revenue increases and a ~~corresponding decrease~~change in ~~revenues. In~~product mix. Revenues increased by 6% in the three ~~and nine~~ months ended ~~September~~June 30, 2020, when compared to the three months ended June 30, 2019, and revenues ~~decreased~~increased by ~~26% and 9%, respectively.~~8% in the six months ended June 30, 2020, when compared to the six months ended June 30, 2019.

Total gross margin as a percentage of revenues was 44%46% in the three months ended ~~September~~June 30, ~~2019~~,2020, compared to 4544% in the three months ended ~~September~~June 30, ~~2018~~. 2019. Total gross margin as a percentage of revenues was 45%45% in both the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019. . The ~~small reduction~~increase in gross margin percentage in the three months ended ~~September~~June 30, ~~2019~~2020 was primarily due to ~~incremental expenses for inventory obsolescence and warranty costs, offset in part by~~ a more favorable product mix. Product mix reflected decreased s ~~Sales~~ales of ~~higher~~lower margin ~~semiconductor sensors represented~~legacy products as a ~~larger~~ percentage of our total revenues in the three months ended ~~September~~June 30, ~~2019, when~~2020, as compared to the three months ended ~~September~~June 30, ~~2018~~2019. ~~. Due to a more favorable product mix,~~

Our total gross ~~margins~~margin as a percentage of revenues in the ~~fourth~~third quarter of ~~2019~~ ~~are~~2020 is expected to be ~~higher on a year-over-year basis and higher to a lesser extent on a sequential quarterly basis.~~at or slightly below the level in this year's second quarter.

Our markets are highly price competitive, particularly ~~segments of~~in the electronics assembly and SMT ~~market that have less demanding inspection requirements.~~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 MRS-enabled SQ~~3000~~SQ3000™ Multi-Function inspection and measurement systems3~~D AOI products,~~ 3D, next generation 3D MRS sensors and ~~WaferSense sensor products,~~semiconductor sensors (consisting primarily of our WaferSense® line of products) have, or are expected to have, more favorable gross margins than many of our existing products. Our next generation 3D MRS-enabled sensor and system products, including wafer level and advanced packaging inspection and metrology products, are being designed for more complex and demanding inspection and metrology applications in the SMT and semiconductor markets. Sales prices and gross profit margins for these applications tend to be higher than margins for products sold in the broader SMT market. However, the gross margin percentage for our next generation 3D MRS-enabled MX3000 AOI system for inspection of memory modules will be lower than our current total gross margin percentage due to the significant material handling and automation required for this product.

R~~&D")~~&D expenses were $~~2.4~~$2.2 million or ~~19%~~14% of revenues in the three months ended ~~September~~June 30, ~~2019~~,2020, compared to $~~2.2~~$2.2 million or 13%15% of revenues in the three months ended ~~September~~June 30, ~~2018~~.2019. R&D expenses were $~~7.0~~4.6 million or 16% 14% of revenues in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020, compared to $~~6.6~~4.5 million or 1415% of revenues in the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019. ~~The increases in~~ R&D expenses in both the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 were reduced by approximately $225,000 due to the ~~result~~favorable impact of the Singapore Government's jobs support program on wage costs discussed above. This benefit was offset by higher compensation costs for new and existing R&D employees, ~~and expenses related to development of our next generation 3D NanoResolution MRS sensor, offset in part by lower~~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 the continued development of our ~~3D MRS technology, including sensor subsystems and the~~portfolio of next generation ~~NanoResolution~~3D MRS-enabled sensor and ~~development of~~system products, and continued R&D work on new ~~applications~~WaferSense® products. We also continue to enhance our SQ3000™ Multi-Function inspection and ~~products for~~ 3measurement machines. ~~D wafer level, advanced packaging and memory module inspection.~~

Selling, general and administrative ("S,G&A") expenses were $~~3.9~~$3.7 million or ~~31%~~23% of revenues in the three months ended ~~September~~June 30, ~~2019~~,2020, compared to $~~3.9~~$3.8 million or 24%25% of revenues in the three months ended ~~September~~June 30, ~~2018~~.2019. S,G&A expenses were $~~11.8~~7.8 million or 28% 24% of revenues in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020, compared to $~~12.4~~7.9 million or 2726% of revenues in the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019. The ~~increases~~decrease in S,G&A expenses as a percentage of revenues ~~reflected our lower revenue levels. However,~~ in both the three and six months ended June 30, 2020 resulted from a decrease in costs and higher revenues. S,G&A expenses in both the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 benefited from lower costs for travel and the cancellation of trade shows due to the Covid-19 pandemic, and the favorable impact of the Singapore Government's jobs support program on wage costs. Commissions paid to third party sales representatives were ~~favorably impacted~~also lower due to the decrease in U.S. sales. These decreases were mostly offset by ~~lower compensation costs resulting from employee departures and lower~~higher bonus accruals ~~and sales commissions resulting from the declines in~~due to our ~~revenues and~~improved financial performance. ~~In addition,~~ S,G&A expenses in the three and nine months ended September 30, 2018 were decreased by an approximately $200,000 reduction in our allowance for doubtful accounts, resulting from collection of a receivable that had been fully reserved for in a prior period.

~~Total~~We anticipate that operating expenses in the ~~fourth~~third quarter of ~~2019~~ ~~are expected~~2020 will increase, and be comparable to ~~be virtually unchanged on both a year-over-year~~the level of these expenses in the first quarter of 2020. The anticipated increase is due to phase-out of the Singapore Government's jobs support program, and ~~quarterly sequential basis.~~our expectation that travel, trade shows and other costs will increase in the third quarter of 2020.

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. InWe recognized losses from foreign currency transactions of $24,000 in the three months ended ~~September~~June 30, ~~2019 and 2018, we~~2020, compared to losses from foreign currency transactions of $7,000 in the three months ended June 30, 2019. We recognized gains from foreign currency transactions of ~~$71,000 and~~ $~~37,000~~146,000 ~~respectively. In~~in the ~~nine~~ six months ended ~~September~~June 30, ~~2019 and 2018, w~~2020, compared to~~e recognized~~ gains from foreign currency transactions of ~~$45,000 and $102,000, respectively.~~$25,000 in the six months ended June 30, 2019.

We recorded an income tax benefit of $~~234,000~~96,000in thethree months ended ~~September~~June 30, ~~2019~~2020, compared to income tax expense of $~~297,000~~192,000 in thethree months ended ~~September~~June 30, ~~2018~~2019. We recorded income tax expense of $~~92,000~~53,000 in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020, compared to income tax expense of $~~444,000~~326,000 in the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019. ~~Our~~The income tax benefit in the three months ended ~~September~~June 30, ~~2019~~2020 includes $340,000 in excess tax benefits from employee stock option exercises. ~~reflectedan effectivetax rate of approximately 40%, compared to an effective tax rate ofapproximately 22% in the~~ ~~three~~ ~~months ended September 30, 2018~~. Our income tax expense in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 reflectedan effectivetax rate of approximately ~~13%~~2%, compared to an effective tax rate of approximately ~~21%~~25% in the~~nine~~ six months ended ~~September~~June 30, ~~2018~~2019. ~~. Fluctuations~~The reduction in ~~our~~ effective tax rate in ~~both~~ the ~~three and nine~~six months ended ~~September~~June 30, 2020, when compared to the six months ended June 30, 2019, ~~are related~~was due to ~~a non-cash income benefit resulting~~the significant excess tax benefits from ~~the completion of an audit of our income taxes~~employee stock option exercises recognized in the ~~Singapore~~six months ended June 30, 2020, deductions for Foreign Derived Intangible Income ("FDII") and Global Intangible Low-Taxed Income ("GILTI") and foreign tax ~~jurisdiction.~~ credits.We were unable to take advantage of the FDII and GILTI deductions and foreign credits in 2019 because we had un-used federal net operating loss carry-forwards. We expect to use our remaining federal net operating loss carry forwards in 2020.~~In the nine months ended September 30, 2019 and 2018, excess tax benefits related to employee share based payments totaled $11,000 and $70,000, respectively.~~ ~~On a recurring basis, our effective income tax rate is significantly impacted by Global Intangible Low Tax Income and U.S. federal R&D tax 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~~state net operating loss carry forwards. A deferred tax asset generally represents future tax benefits to be received when temporary differences previously reported in our consolidated financial statements become deductible for income tax purposes, when net operating loss carry forwards could be applied against future taxable income, or when tax credit carry forwards are utilized on our tax returns. We assess the realizability of our deferred tax assets and the need for a valuation allowance based on the guidance provided in current financial accounting standards.

Significant judgment is required in determining the realizability of our deferred tax assets. The assessment of whether valuation allowances are required considers, among other matters, the nature, frequency and severity of any current and cumulative losses, forecasts of future profitability, the duration of statutory carry-forward periods, our experience with 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 ~~years~~in each of the tax jurisdictions in which we operate, our financial performance in recent quarters, statutory carry-forward periods and tax planning alternatives. In addition, we considered both our near-term and long-term financial outlook. After considering all available evidence (both positive and negative), we concluded that recognition of valuation allowances for substantially all of our U.S. and Singapore based deferred tax assets ~~was~~were not required.

~~Backlog~~The Inland Revenue Authority of Singapore has initiated a routine compliance review of our 2018 income tax return. We presently anticipate that the outcome of this audit will not have a significant impact on our financial position or results of operations.

~~Backlog totaled $14.4 million at~~ ~~September 30, 2019, an increase from $13.6~~ ~~million at December 31, 2018, but down from $19.7~~ ~~million at~~ ~~September 30, 2018. Our products are typically shipped~~ ~~two~~ ~~weeks to~~ ~~two~~ months after receipt of an order. Sales of some inspection system products may require customer acceptance due to performance or other acceptance criteria included in the terms of sale. For these product sales, revenue is recognized at the time of customer acceptance. Our backlog at any time may vary significantly based on the timing of orders from OEM customers. ~~In some instances, our OEM customers may place orders for shipment of products covering periods of~~ ~~nine~~ ~~months or longer.~~ ~~Accordingly, backlog may not be an accurate indicator of performance in the future.~~

Liquidity and Capital Resources

Our cash and cash equivalents ~~decreased~~increased by ~~$1.1 million~~$773,000 in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~.2020. Cash provided by operating activities of ~~$916,000~~$3.2 million and proceeds of $~~6.1~~$6.2 million from maturities of marketable securities were ~~more than~~partially offset by purchases of marketable securities totaling $$8.0 ~~7.1~~million and purchases of fixed assets and capitalized patent costs totaling $~~1.2~~$518,000. In addition, we used $420,000 of cash as tax payments for ~~million.~~shares withheld related to stock option exercises which were mostly offset by the proceeds from the stock option exercises totaling $256,000. 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 ~~were $25.3~~increased by $2.8 million to $29.1 million as of ~~both September~~June 30, ~~2019 and~~ 2020, from $26.3 million as of December 31, ~~2018~~.2019.

Operating activities provided ~~$916,000~~$3.2 million of cash in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~.2020. The amount of cash provided by operations was favorably impacted by net income of $~~606,000~~.$2.5 million. Net income was affected by non-cash expenses totaling $~~2.8~~$1.8 million 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~~ ~~nine months ended September 30, 2019~~, included a decrease in accounts receivable of ~~$2.6~~$1.4 million, ~~a decrease~~ an increase in ~~other assets~~accounts payable of $~~235,000~~$2.7 million and an increase in ~~operating lease assets and liabilities~~accrued expenses of ~~$482,000.~~$780,000. Changes in operating assets and liabilities using cash ~~in the~~ ~~nine months ended September 30, 2019~~included an increase in inventories of $~~1.1~~$5.0 million, ~~a decrease~~an increase in ~~accounts payable~~prepaid expenses and other current assets of ~~$3.5 million~~$782,000 and ~~a decrease~~minimal changes in ~~accrued expenses of $1.1 million~~.other operating assets and liabilities totaling $76,000. Accounts receivable decreased due to ~~lower~~faster collections and a decrease in sales in the ~~third~~second quarter of ~~2019~~,2020 when compared to the fourth quarter of ~~2018, offset~~2019. We ended the second quarter of 2020 with a large backlog of orders. Inventories and accounts payable at June 30, 2020 increased due to planned purchases of raw materials to meet customer demand. The increase in ~~part by~~ ~~slower collection of accounts receivable. Sales of inspection~~accrued expenses was mainly due to bonus accruals resulting from our improved financial performance. The increase in prepaid expenses and ~~metrology systems, which typically have longer collection periods than sales of our sensor products, have constituted a larger portion of our revenues in recent quarters. Other~~other current assets ~~decreased because deposits previously paid~~was due to advance payments to a key materials supplier ~~of materials were used to purchase inventories.~~ ~~The increase in operating lease assets and liabilities resulted from lease incentives, including free rent and facility operating costs, and~~for the ~~effects of straight-line rent expense.~~ ~~Inventories increased due to sluggish conditions in the global SMT and semiconductor capital equipment markets, with a corresponding negative impact on sales, causing inventory levels to rise.~~ MX600 systems.~~Accounts payable decreased in the third quarter of 2019 due to the timing of inventory purchases, with more raw materials being acquired in the fourth quarter of~~ ~~2018~~ and the first half of 2019. These materials were subsequently paid for prior to September 30, 2019, resulting in a lower accounts payable balance. Accrued expenses decreased due to lower compensation accruals at September 30, 2019, resulting from payment of ~~2018~~ ~~bonuses in early~~ ~~2019,~~ ~~and payment of employee wages near the end of the third quarter.~~

Investing activities used ~~$2.1~~$2.3 million of cash in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~.2020. Changes in the level of investment in marketable securities, resulting from purchases and maturities of those securities, used $~~936,000~~ ~~of cash in the~~ ~~nine months ended September 30, 2019. We used $1.2~~$1.8 million of cash in the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020. We used $518,000 of cash in the six months ended June 30, 2020 for the purchase of fixed assets and capitalized patent costs.

Financing activities ~~provided $23,000~~used $164,000 of cash in the ~~nine~~six months ended ~~September~~June 30, ~~2019. Proceeds~~2020. Tax payments for shares withheld related to stock option exercises were mostly offset by the proceeds from the exercise of stock ~~options and share purchases under our employee stock purchase plan provided $376,000 of cash in the nine months ended September 30, 2019.~~ options.

In July 2019, our Board of Directors authorized a $~~3.0~~$3.0 million share repurchase program ~~through~~which expired on June 30, 2020. ~~Share repurchases~~No shares were repurchased under this program ~~used $353,000 of cash~~ in the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~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 from the old lease that expired in July 2020.

At ~~September~~June 30, ~~2019~~,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.

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.

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

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

In July 2019, our Board of Directors authorized ~~the repurchase of up to~~a $3.0 million ~~of shares of our common stock. The common stock will be acquired from time to time~~share repurchase program which expired on June 30, 2020. There were no share repurchases under this program in ~~open market transactions, block purchases and other transactions complying with Rule 10b-18 of~~ the ~~Securities and Exchange Commission.~~six months ended June 30, 2020.

~~Company Repurchase of Equity Securities~~

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

8,575

$
13.61

8,575

$
2,883,316
August 1, 2019 to August 31, 2019

17,410

$
13.60

17,410

$
2,646,592

September 1, 2019 to September 30, 2019

—

$
—

—

$
2,646,592
Total

25,985

$
13.60

25,985

$
2,646,592

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 – MINE SAFETY DISCLOSURES

None.

ITEM 5 – OTHER INFORMATION

None.

ITEM 6 – EXHIBITS


~~31.1~~: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~~: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
32:32:		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

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		8,000		28.34
Vested	(6,000	)	16.59		(4,000	)	17.26
Forfeited	(875	)	16.19		—		—
Non-vested at September 30, 2019	57,536		$	17.67
Non-vested at June 30, 2020					72,204		$	18.61


(In thousands)	September 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Raw materials and purchased parts	$	10,352	$	8,821	$	11,542	$	9,845
Work in process	1,426		2,446		2,166		1,837
Finished goods	4,582		4,896		4,770		2,373
Demonstration inventories, net					1,437		1,525
Total inventories	$	16,360	$	16,163	$	19,915	$	15,580


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


	Nine Months Ended September 30,
(In thousands)	2019			2018
Balance at beginning of period	$	789		$	767
Accrual for warranties	713			399
Warranty revision	(7		)	(30		)
Settlements made during the period	(626		)	(368		)
Balance at end of period	869			768
Current portion of estimated warranty liability	(843		)	(713		)
Long-term estimated warranty liability	$	26		$	55


	Six Months Ended June 30,
(In thousands)	2020			2019
Balance at beginning of period	$	798		$	789
Accrual for warranties	429			450
Warranty revision	9			(22		)
Settlements made during the period	(474		)	(379		)
Balance at end of period	762			838
Current portion of estimated warranty liability	(729		)	(806		)
Long-term estimated warranty liability	$	33		$	32


	Three Months Ended September 30, 2019				Three Months Ended September 30, 2018
(In thousands except percentages)	Revenues		Percent of Revenues		Revenues		Percent of Revenues
Revenue recognized over time	$	403	3	%	$	1,241	7	%
Revenue recognized at a point in time		11,988	97	%		15,442	93	%
	$	12,391	100	%	$	16,683	100	%


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


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

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


	Fair Value Measurements at December 31, 2018 Using
(In thousands)	Balance December 31, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Marketable securities:
U.S. government and agency obligations	$	9,458	$	—	$	9,458	$	—
Corporate debt securities and certificates of deposit	2,537		—		2,537		—
Asset backed securities	4,038		—		4,038		—
Equity security	60		60		—		—
Total marketable securities	$	16,093	$	60	$	16,033	$	—

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


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


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

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

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

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

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


	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)