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Form 10-Q CYBEROPTICS CORP For: Jun 30

August 11, 2022 11:22 AM EDT

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 


FORM 10-Q

 

 

 

 

(Check One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended June 30, 2022

 

 

  

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  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  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  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 August 3, 2022, there were 7,421,521 shares of the registrant’s Common Stock, no par value, issued and outstanding.

1


PART I. FINANCIAL INFORMATION


ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS 

CYBEROPTICS CORPORATION 

(Unaudited)

   

 

 

 

 

 

 

 

 

(In thousands, except share information)

 

June 30,
2022

 

December 31,
2021

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,876

 

 

$

13,684

 

Marketable securities

 

11,794

 

 

7,327

 

Accounts receivable, less allowances of $435 at June 30, 2022 and $355 at December 31, 2021

 

28,050

 

 

19,821

 

Inventories

 

29,645

 

 

27,602

 

Prepaid expenses
697

808

Other current assets

 

2,219

 

 

864

 

Total current assets

 

81,281

 

 

70,106

 




Marketable securities, long-term 

 

16,081

 

 

17,281

 

Equipment and leasehold improvements, net

 

3,281

 

 

3,174

 

Intangible assets, net

 

342

 

 

375

 

Goodwill

 

1,366

 

 

1,366

 

Right-of-use assets (operating leases)
1,752

2,052


Deferred tax assets

 

3,509

 

 

3,668

 

Total assets

 

$

107,612



$

98,022

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Accounts payable

 

$

12,894

 

 

$

10,275

 

Advance customer payments

 

713

 

 

599

 

Accrued expenses

 

3,778

 

 

4,418

 

Current operating lease liabilities
870

864

Total current liabilities

 

18,255

 

 

16,156

 

 

Other liabilities

 

155

 

 

177

 

Long-term operating lease liabilities
1,934

2,369

Reserve for income taxes

 

213

 

 

214

 

Total liabilities

 

20,557

 

 

18,916

 

 

 

Commitments and contingencies

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, no par value, 5,000,000 shares authorized, none outstanding

 

 

 

 

Common stock, no par value, 25,000,000 shares authorized, 7,413,983 shares issued and outstanding at June 30, 2022 and 7,391,906 shares issued and outstanding at December 31, 2021

 

40,016

 

 

39,052

 

Accumulated other comprehensive loss

 

(2,505

)

 

(1,510

)

Retained earnings

 

49,544

 

 

41,564

 

Total stockholders’ equity

 

87,055

 

 

79,106

 

Total liabilities and stockholders’ equity

 

$

107,612

 

 

$

98,022

 

 

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

 

2


 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME

CYBEROPTICS CORPORATION

(Unaudited)

 

















 


Three Months Ended June 30,

Six Months Ended June 30,

(In thousands, except per share amounts)


2022
2021
2022
2021

Revenues


$ 27,569

$ 25,204

$ 51,815

$ 42,936

Cost of revenues 



14,159


14,095


26,811


23,448

 

















Gross margin



13,410


11,109


25,004


19,488

 

















Research and development expenses



3,069


2,753


5,998


5,514

Selling, general and administrative expenses



5,359



4,695


10,060


8,583

 

















Income from operations



4,982

3,661

8,946


5,391

 

















Interest income and other



39

38

124


60

 

















Income before income taxes



5,021

3,699

9,070


5,451

 

















Income tax expense



632

590

1,090


901

 

















Net income


$ 4,389
$ 3,109
$ 7,980

$ 4,550

 

















Net income per share – Basic


$ 0.59
$ 0.43
$ 1.08

$ 0.62

Net income per share – Diluted


$ 0.58

$ 0.41
$ 1.05

$

0.61

 

















Weighted average shares outstanding – Basic



7,404


7,299


7,398


7,296

Weighted average shares outstanding – Diluted



7,603



7,517


7,592


7,490

 

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

 

3


 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 

CYBEROPTICS CORPORATION  

(Unaudited)


















 


Three Months Ended June 30,
Six Months Ended June 30,

(In thousands)


2022
2021
2022
2021

Net income


$ 4,389
$ 3,109
$ 7,980

$ 4,550

 

















Other comprehensive loss before income taxes:

















Foreign currency translation adjustments

(435 )

20

(506 )

(127 )

 

















Unrealized losses on available-for-sale debt securities



(162 )

(52 )

(619 )

(124 )

 

















Total other comprehensive loss before income taxes  



(597 )

(32 )

(1,125 )

(251 )

















Income tax benefit



(34 )

(11 )

(130 )

(26 )

















Total other comprehensive loss after income taxes



(563 )

(21 )

(995 )

(225 )

















Total comprehensive income 


$ 3,826
$ 3,088
$ 6,985

$ 4,325

 

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

 

4


 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

CYBEROPTICS CORPORATION

(Unaudited) 

 

 

 

 



 

 

 

 

 

Six Months Ended June 30,

(In thousands)

 

2022



2021

 

CASH FLOWS FROM OPERATING ACTIVITIES:


 



 

 

Net income

 

$

7,980



$

4,550


Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 



 

 

Depreciation and amortization

 

1,147



1,292

 

Non-cash operating lease expense
300

287

Provision for doubtful accounts

 

122


174

Deferred taxes

 

286


388

Foreign currency transaction (gains) losses

 

(195

)

16

Share-based compensation

 

726



671

 

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

 

12


(12

)

Changes in operating assets and liabilities:

 

 



 

 

Accounts receivable

 

(8,351

)

(7,303

)

Inventories

 

(2,710

)

(3,493

)

Prepaid expenses and other assets

 

(1,194

)

(117

)

Accounts payable

 

2,714


6,024

Advance customer payments and other

 

79


133

Accrued expenses

 

(597

)

456

Operating leases
(429 )
(409 )

Net cash provided by (used in) operating activities 

 

(110

)

2,657


 


 



 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:


 



 

 

Proceeds from maturities of available-for-sale marketable securities 


5,098



6,083

 

Proceeds from sales of available-for-sale marketable securities


225

Purchases of available-for-sale marketable securities


(9,086

)

(6,775

)

Additions to equipment and leasehold improvements


(908

)

(936

)

Additions to patents


(72

)

(159

)

Net cash used in investing activities


(4,968

)

(1,562

)

 

 

 



 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:


 



 

 

Proceeds from exercise of stock options


239



67

 

Tax payments for shares withheld related to stock option exercises
(1 )

Net cash provided by financing activities


238


67

 

 

 



 

 

 

Effects of exchange rate changes on cash and cash equivalents


32


6

 


 



 

 

 

Net (decrease) increase in cash and cash equivalents


(4,808

)

1,168

 


 



 

 

 

Cash and cash equivalents – beginning of period


13,684



8,399

 

Cash and cash equivalents – end of period


$

8,876



$

9,567

 

 

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

 

5


NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CYBEROPTICS CORPORATION


1. INTERIM REPORTING:


The interim condensed consolidated financial statements of CyberOptics Corporation and its wholly-owned subsidiaries ("we", "us" or "our") presented herein as of June 30, 2022, and for the three and six month periods ended June 30, 2022 and 2021, are unaudited but, in the opinion of management, include all adjustments, consisting of normal recurring adjustments necessary, for a fair presentation of financial position, results of operations and cash flows for the periods presented.


The results of operations for the three and six month periods ended June 30, 2022 do not necessarily indicate the results to be expected for the full year. The December 31, 2021 consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America ("U.S. GAAP"). The unaudited interim condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2021.


2. COVID-19 PANDEMIC:

 

Effect of Covid-19 Outbreak on Business Operations

The Covid-19 outbreak has not had a significant impact on our business to date. The potential impact of Covid-19 on our business, results of operations, liquidity and prospects in the future is not fully known at this time.  The following factors related to the Covid-19 outbreak may affect our business in the future:

 

·

Sales of some products, mainly our SQ3000 Multi-Function systems and MX memory module inspection products, require customer acceptance due to performance or other criteria that is considered more than a formality. Global travel restrictions and quarantine measures could hinder our ability to obtain customer acceptances in a timely manner in the future, and therefore impact the timing of revenue recognition. In addition, government mandated shelter-in-place orders or quarantine measures could cause delays in our ability to deliver our products to customers, or cause customers to delay purchases of our products, negatively impacting our revenue and profitability.

   
·
The Covid-19 pandemic has caused disruptions in the global supply chain, including shortages of raw materials, parts and labor, and shipping and logistics issues, including delays in ocean freight and port congestion. The inability to obtain adequate supply of components or labor could result in the inability to meet customer demands and delivery of one or more of our products for a period of several months or longer, negatively impacting our revenue and profitability. Supply chain disruptions are expected to continue for the foreseeable future and may increase if the pandemic worsens or continues for an extended period of time. 

 

Although we cannot estimate the continuing impact of the Covid-19 outbreak at this time, it may have an adverse effect on our results of future operations, financial position and liquidity. 

 

3. RECENT ACCOUNTING DEVELOPMENTS: 


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


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

6



4. REVENUE RECOGNITION:


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


The following is a summary of our revenue performance obligations:








Three Months Ended June 30, 2022
Three Months Ended June 30, 2021

(In thousands except percentages)


Revenues

Percent of Revenues

Revenues


Percent of Revenues

Revenue recognized over time


$ 748

2.7

%

$

695



2.8

%

Revenue recognized at a point in time



26,821

97.3 %

24,509


97.2

%


$ 27,569

100.0 %

$

25,204


100.0

%









Six Months Ended June 30, 2022
Six Months Ended June 30, 2021

(In thousands except percentages)


Revenues

Percent of Revenues

Revenues


Percent of Revenues

Revenue recognized over time


$ 1,590

3.1

%

$

1,098



2.6

%

Revenue recognized at a point in time



50,225

96.9 %

41,838


97.4

%


$ 51,815

100.0 %

$

42,936


100.0

%


See Note 11 for additional information regarding disaggregation of revenue. 


Contract Balances


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

The following summarizes our contract assets and contract liabilities:     






(In thousands)


June 30,

2022


December 31,

2021

Contract assets, included in other current assets


$

171

 


$

 7

 

Contract liabilities - advance customer payments


$

359

 


$

289

 

Contract liabilities - deferred warranty revenue 
$ 454

$ 445


Changes in contract assets in the six months ended June 30, 2022 and the six months ended June 30, 2021 resulted from unbilled amounts under sensor product arrangements and longer duration 3D scanning service projects in which revenue is recognized over time. Changes in contract liabilities primarily resulted from reclassification of beginning contract liabilities to revenue as performance obligations were satisfied or from cash received in advance and not recognized as revenue. See Note 9 for changes in contractual obligations related to deferred warranty revenue. Unsatisfied performance obligations for deferred warranty revenue are generally expected to be recognized as revenue over the next one to three years. There were no impairment losses for contract assets in the six months ended June 30, 2022 or the six months ended June 30, 2021.  

 

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













Three Months Ended June 30,

Six Months Ended June 30,
(In thousands)
2022
2021

2022


2021

Amounts reclassified from beginning contract liabilities to revenue


$ 624

$ 120

$ 182

$ 345
Amounts reclassified from deferred warranty revenue

102


98


198


161
Total  $ 726 $ 218
$ 380

$ 506

7



5. MARKETABLE SECURITIES:


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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2022

(In thousands)

 

Amortized Cost

 

Unrealized
Gains

 

Unrealized
Losses

 

Fair Value

Short-Term

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

5,897

 

 

$

 

 

$

(77
)

 

$

5,820

 

Corporate debt securities and certificates of deposit

 

5,576

 

 

1

 

 

(45

)

 

5,532

 

Asset backed securities
445



(3 )
442

Marketable securities – short-term

 

$

11,918

 

 

$

1

 

 

$

(125

)

 

$

11,794

 

Long-Term

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

8,505

 

 

$

1

 

 

$

(287

)

 

$

8,219

 

Corporate debt securities and certificates of deposit 

 

5,310

 

 

 

 

(184

)

 

5,126

 

Asset backed securities

 

2,773

 

 


 

 

(68

)

 

2,705

 

Equity security

 

42

 

 

 

 

(11

)

 

31

 

Marketable securities – long-term

 

$

16,630

 

 

$

1

 

 

$

(550

)

 

$

16,081

 





 

December 31, 2021

(In thousands)

 

Amortized Cost

 

Unrealized
Gains

 

Unrealized
Losses

 

Fair Value

Short-Term

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

3,005

 

 

$

13

 

 

$

 

$

3,018

 

Corporate debt securities and certificates of deposit

 

4,177

 

 

8

 

 

(2

)

 

4,183

 

Asset backed securities

 

125

 

 

1

 

 

 

 

126

 

  Marketable securities – short-term

 

$

7,307

 

 

$

22

 

 

$

(2

)

 

$

7,327

 

Long-Term

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

9,921

 

 

$

5

 

 

$

(57

)

 

$

9,869

 

Corporate debt securities and certificates of deposit

 

4,869

 

 

9

 

 

(18

)

 

4,860

 

Asset backed securities

 

2,511

 

 

9

 

 

(11

)

 

2,509

 

Equity security

 

42

 

 

1

 

 

 

43

 

Marketable securities – long-term

 

$

17,343

 

 

$

24

 

 

$

(86

)

 

$

17,281

 

 

8



At June 30, 2022 and December 31, 2021, investments in marketable debt securities in an unrealized loss position were as follows:  

 
 
 
 

 
In Unrealized Loss Position For
Less Than 12 Months 
 
 In Unrealized Loss Position For
Greater Than 12 Months
(In thousands) 
 
Fair Value
 
Gross Unrealized
Losses
 
Fair Value
 
Gross Unrealized
Losses
June 30, 2022












   U.S. government and agency obligations

$
10,231


$
(223
)

$
4,054


$
(157
)
   Corporate debt securities and certificates of deposit

8,665


(197
)

679


(16
)
   Asset backed securities

2,206


(51
)

530


(20
)
      Marketable securities

$
21,102


$
(471
)

$
5,263


$
(193
)
December 31, 2021
 
 

 
 

 
 

 
 

U.S. government and agency obligations
 
$
9,250

 
$
(57
)
 
$
 
$
Corporate debt securities and certificates of deposit
 
5,188

 
(18
)
 
355
 
(2
)
Asset backed securities

1,278


(11
)




Marketable securities
 
$
15,716

 
$
(86
)
 
$
355
 
$
(2
)


Our long-term investments in marketable debt securities all have maturities of less than five years. Net pre-tax unrealized losses for marketable debt securities of $662,000 at June 30, 2022 and $43,000 at December 31, 2021 have been recorded as a component of accumulated other comprehensive loss in stockholders’ equity. We only invest in highly rated investment grade debt securities. We have determined that the net pre-tax unrealized losses for marketable debt securities at June 30, 2022 and December 31, 2021 were caused by fluctuations in interest rates and are temporary in nature. We review our marketable debt securities to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the investment grade credit quality of our debt securities and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. At June 30, 2022 there were 171 marketable debt securities in an unrealized loss position, with the largest loss for any single security being equal to approximately $14,000. No marketable securities were sold in the three and six months ended June 30, 2022. We received proceeds from the sale of marketable securities of $225,000 in the three and six months ended June 30, 2021. The gain recognized on the sale was insignificant. See Note 6 for additional information regarding the fair value of our investments in marketable securities.   


Investments in marketable debt securities classified as cash equivalents of $4.9 million at June 30, 2022 and $8.8 million at December 31, 2021, consist of commercial money market savings accounts, corporate debt securities and certificates of deposit. There were no unrealized gains or losses associated with any of these securities at June 30, 2022 or December 31, 2021.


Cash and marketable securities held by foreign subsidiaries totaled $618,000 at June 30, 2022 and $588,000 at December 31, 2021.


6. FAIR VALUE MEASUREMENTS: 


We determine the fair value of our assets and liabilities based on the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. We use a fair value hierarchy with three levels of inputs, of which the first two are considered observable and the last is considered unobservable, to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1). The next highest priority is based on observable inputs other than Level 1 inputs including quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in less active markets or other observable inputs (Level 2). The lowest priority is given to unobservable inputs (Level 3). The following provides information regarding fair value measurements for our marketable securities as of June 30, 2022 and December 31, 2021 according to the three-level fair value hierarchy:

 

9





 

 

Fair Value Measurements at
June 30, 2022 Using

(In thousands)

 

Balance

June 30, 
2022

 

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

 

$

14,039

 

 

$

 

 

$

14,039

 

 

$

 

Corporate debt securities and certificates of deposit 

 

10,658

 

 

 

 

10,658

 

 

 

Asset backed securities

 

3,147

 

 

 

 

3,147

 

 

 

Equity security

 

31

 

 

31

 

 

 

 

 

Total marketable securities 

 

$

27,875

 


$

31

 

 

$

27,844

 

 

$

  


















 

 

Fair Value Measurements at
December 31, 2021 Using

(In thousands)

 

Balance

December 31,

2021

 

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

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency obligations

 

$

12,887

 

 

$

 

 

$

12,887

 

 

$

 

Corporate debt securities and certificates of deposit

 

9,043

 

 

 

 

9,043

 

 

 

Asset backed securities

 

2,635

 

 

 

 

2,635

 

 

 

Equity security

 

43

 

 

43

 

 

 

 

 

Total marketable securities

 

$

24,608

 

 

$

43

 

 

$

24,565

 

 

$

 


During the six months ended June 30, 2022 and the year ended December 31, 2021, we owned no Level 3 securities and there were no transfers within the three level hierarchy. A significant transfer is recognized when the inputs used to value a security have been changed which merit a transfer between the levels of the valuation hierarchy.       


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


Non-financial assets such as equipment and leasehold improvements, goodwill and intangible assets and right-of-use assets for operating leases are subject to non-recurring fair value measurements if they are deemed impaired. We had no re-measurements of non-financial assets to fair value in the six months ended June 30, 2022 or the six months ended June 30, 2021.   

 

10


 

7. SHARE-BASED COMPENSATION:


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

Employee Stock Incentive Plan

 

As of June 30, 2022, there were 387,507 shares of common stock reserved in the aggregate for issuance pursuant to future awards under our Employee Stock Incentive Plan and 383,351 shares of common stock reserved in the aggregate for issuance pursuant to outstanding awards under such plan. Although our Compensation Committee has authority to issue options, restricted stock, restricted stock units, share grants and other share-based benefits under our Employee Stock Incentive Plan, to date only restricted stock units and stock options have been granted under the plan. Options have been granted at an option price per share equal to the market value of our common stock on the date of grant, vest over a four year period and expire seven years after the date of grant. Restricted stock units vest over a four year period and entitle the holders to one share of our common stock for each restricted stock unit. Reserved shares underlying outstanding awards, including options and restricted stock units, that are forfeited are available under the Employee Stock Incentive Plan for future grant.

 

Non-Employee Director Stock Plan

 

As of June 30, 2022, there were 28,000 shares of common stock reserved in the aggregate for issuance pursuant to future restricted share grants under our Non-Employee Director Stock Plan and 8,000 shares of common stock reserved in the aggregate for issuance pursuant to outstanding stock option awards under our Non-Employee Director Stock Plan (which previously authorized the granting of stock options to non-employee directors). Under the terms of the plan, each non-employee director receives annual restricted share grants of 2,000 shares of our common stock on the date of each annual meeting at which such director is elected to serve on the board. The annual restricted share grants of common stock vest in four equal quarterly installments during the year after the grant date, provided the non-employee director is still serving as a director on the applicable vesting date. 

 

On the date of our 2022 annual meeting, we issued 8,000 shares of our common stock to our non-employee directors, which were restricted as specified in the Non-Employee Director Stock Plan. The shares granted at the 2022 annual meeting had an aggregate fair market value on the date of grant equal to $336,000 (grant date fair value of $42.03 per share). As of June 30, 2022, none of these shares were vested. The aggregate fair value of the 8,000 unvested shares based on the closing price of our common stock on June 30, 2022 was $280,000


Stock Option Activity


The following is a summary of stock option activity in the six months ended June 30, 2022:

   

 

 

 

 

 

 

 

Options Outstanding

 

Weighted Average Exercise
Price Per Share

Outstanding, December 31, 2021

351,825

 

 

$

18.11

 

Exercised

(14,375

)

 

17.30

 

Outstanding, June 30, 2022

337,450

 

 

$

18.14

 


 

 

 

Exercisable, June 30, 2022

242,651

 

 

$

14.67

 

 

11


The intrinsic value of an option is the amount by which the market price of the underlying common stock exceeds the option's exercise price. For options outstanding at June 30, 2022, the weighted average remaining contractual term of all outstanding options was 2.93 years and their aggregate intrinsic value was $5.9 million. At June 30, 2022, the weighted average remaining contractual term of options that were exercisable was 2.07 years and their aggregate intrinsic value was $4.9 million. The aggregate intrinsic value of stock options exercised was $314,000 in the six months ended June 30, 2022 and $87,000 in the six months ended June 30, 2021. We received proceeds from stock option exercises of $239,000 in the six months ended June 30, 2022 and $67,000 in the six months ended June 30, 2021. No stock options vested in the six months ended June 30, 2022 or the six months ended June 30, 2021. No stock options were granted, forfeited or expired in the six months ended June 30, 2022. 


Restricted Shares and Restricted Stock Units 

There were 8,000 restricted shares granted under our Non-Employee Director Stock Plan in the six months ended June 30, 2022. Restricted stock units are granted under our Employee Stock Incentive Plan. The fair value of restricted shares and restricted stock units is equal to the fair market value of our common stock on the date of grant. The aggregate fair value of outstanding restricted shares and restricted stock units based on the closing share price of our common stock as of June 30, 2022 was $2.2 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 $159,000 in the six months ended June 30, 2022 and $115,000 in the six months ended June 30, 2021.  

 

The following is a summary of activity in restricted shares and restricted stock units in the six months ended June 30, 2022:

Restricted shares and restricted stock units

 

Shares

 

Weighted Average Grant Date Fair Value

Non-vested at December 31, 2021

 

57,901

 

 

$

28.21

 

Granted - restricted shares
8,000

42.03

Vested

 

(4,000

)

 

27.96

 

Non-vested at June 30, 2022

 

61,901

 

 

$

30.02

 

 

No restricted stock units were granted or forfeited in the six months ended June 30, 2022. No restricted shares were forfeited in the six months ended June 30, 2022.


Employee Stock Purchase Plan


We have an Employee Stock Purchase Plan available to eligible U.S. employees. Under the terms of the plan, eligible employees may designate from 1% to 10% of their compensation to be withheld through payroll deductions, up to a maximum of $6,500 in each plan year, for the purchase of common stock at 85% of the lower of the market price on the first or last day of the offering period (which begins on August 1st and ends on July 31st of each year). There were no shares purchased under this plan in the six months ended June 30, 2022. As of June 30, 2022, 129,411 shares remain available for future purchase under the Employee Stock Purchase Plan.   


Share-Based Compensation Information 

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


Pre-tax share-based compensation expense in the three months ended June 30, 2022 totaled $373,000, and included $126,000 for stock options, $34,000 for our Employee Stock Purchase Plan, $141,000 for restricted stock units and $72,000 for restricted shares. Pre-tax share-based compensation expense in the six months ended June 30, 2022 totaled $726,000, and included $249,000 for stock options, $68,000 for our Employee Stock Purchase Plan, $282,000 for restricted stock units and $127,000 for restricted shares. 

 

Pre-tax share-based compensation expense in the three months ended June 30, 2021 totaled $337,000, and included $125,000 for stock options, $31,000 for our Employee Stock Purchase Plan, $124,000 for restricted stock units and $57,000 for restricted shares. Pre-tax share-based compensation expense in the six months ended June 30, 2021 totaled $671,000, and included $248,000 for stock options, $63,000 for our Employee Stock Purchase Plan, $247,000 for restricted stock units and $113,000 for restricted shares.


At June 30, 2022, the total unrecognized compensation cost related to non-vested share-based compensation arrangements was $2.5 million and the related weighted average period over which such cost is expected to be recognized was 2.44 years. 


12


8CHANGES IN STOCKHOLDERS’ EQUITY:

 

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


Three Months Ended June 30, 2022:


 

Common Stock

Accumulated

Other Comprehensive

Loss

 

Retained

Earnings

Total Stockholders’

Equity

(In thousands)

Shares

 

 Amount 

 

Balance, March 31, 2022

7,403

 

39,587

 

(1,942

)

 

45,155

 

82,800

 

Exercise of stock options, net of shares exchanged as payment
3


56








56
Share issuances for director compensation
8












Share-based compensation

 

 

373

 

 

 

 

 

 

373

 

Other comprehensive loss, net of tax

 

 

 

 

(563

)

 

 

 

 

(563

)

Net income

 

 

 

 

 

 

4,389

 

 

4,389

 

Balance, June 30, 2022

7,414

 

40,016

 

(2,505

)

 

49,544

 

87,055

 

Six Months Ended June 30, 2022:


  Common Stock

Accumulated

Other Comprehensive

Loss

 

Retained

Earnings

Total Stockholders’

Equity

(In thousands)  Shares    Amount   
Balance, December 31, 2021    7,392   $  39,052   $  (1,510 )   $ 41,564   $ 79,106  
Exercise of stock options, net of shares exchanged as payment
14


239








239
Tax payments for shares withheld related to stock option exercises



(1
)








(1
)
Share issuances for director compensation
8












Share-based compensation       726                726  
Other comprehensive loss, net of tax             (995 )         (995 )
Net income                   7,980   7,980
Balance, June 30, 2022  7,414   $ 40,016   $ (2,505 )   $ 49,544   $ 87,055  

Three Months Ended June 30, 2021


 

Common Stock

Accumulated

Other Comprehensive

Loss

 

Retained

Earnings

Total Stockholders’

Equity

(In thousands)

Shares

 

 Amount 

 

Balance, March 31, 2021

7,299

 

38,208

 

(1,306

)

 

30,254

 

67,156

 

Exercise of stock options, net of shares exchanged as payment
1


10








10
Share issuances for director compensation
8










Share-based compensation

 

 

337

 

 

 

 

 

 

337

 

Other comprehensive loss, net of tax

 

 

 

 

(21

)

 

 

 

 

(21

)

Net income