Risk Factors and Forward-Looking Statements
In addition to historical information, this Quarterly Report on Form 10-Q for the period ended
March 31, 2022(this "Report"), including this management's discussion and analysis ("MD&A"), contains statements that are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements do not convey historical information but relate to predicted or potential future events and financial results, such as statements of our plans, strategies and intentions, or our future performance or goals that are based upon management's current expectations. Our forward-looking statements can often be identified by the use of forward-looking terminology such as "believes," "expects," "intends," "may," "could," "will," "should," "plans," "projects," "forecasts," "seeks," "anticipates," "goal," "objective," "target," "estimate," "future," "outlook," "vision," or variations of such words or similar terminology. Investors and prospective investors are cautioned that such forward-looking statements are only projections based on current estimations. These statements involve risks and uncertainties and are based upon various assumptions. Such risks and uncertainties include, but are not limited to:
? our ability to execute our 5-point strategy;
? our ability to increase our presence in life sciences, security, industrial
and international markets;
? the possibility of future acquisitions or divestitures and the success
the integration of any acquired operations;
? the success of our strategy of diversifying our activities by penetrating markets
outside of the semiconductor and automated test equipment (“ATE”) markets,
collectively the “semi-market”;
? indications of a change in market cycles in the semi-market, or other
the markets we serve;
? semi-finished products market developments and trends, including changes in demand
? our ability to convert backlog into sales and ship products in a timely manner
? the loss of one or more of our largest customers, or a reduction in orders
by a major client;
? the availability of materials used to manufacture our products;
? the impact of current global supply chain constraints or other disruptions
in our supply chain caused by external factors, including the ongoing war in
? the impact of inflation on our business and financial condition;
? the impact of COVID-19 on our business, liquidity, financial condition and
results of operations; ? the sufficiency of cash balances, lines of credit and net cash from operations; ? stock price fluctuations;
? the ability to borrow funds or raise capital to finance potential acquisitions
or for working capital;
? changes in the pace and timing of capital expenditures by our customers;
? effects of exchange rate fluctuations;
? the progress of product development programs;
? the intended market for our products;
? the availability and retention of key personnel or our ability to hire
staff at planned costs;
? general economic conditions both domestically and internationally, and
? other risk factors included in part I, point 1A – “Risk factors” of our 2021
Form 10-K. -24-
-------------------------------------------------------------------------------- These risks and uncertainties, among others, could cause our actual future results to differ materially from those described in our forward-looking statements or from our prior results. Any forward-looking statement made by us in this Report is based only on information currently available to us and speaks to circumstances only as of the date on which it is made. We are not obligated to update these forward-looking statements, even though our situation may change in the future. Overview
This MD&A should be read in conjunction with the accompanying consolidated financial statements. In addition, please refer to the discussion of our business and markets contained in Part 1, Item 1 of our 2021 Form 10-K.
We are a global supplier of innovative test and process solutions for use in manufacturing and testing across a wide range of markets including automotive, defense/aerospace, industrial, life sciences, security and semiconductor. During the year ended
December 31, 2021, we managed our business as two operating segments which were also our reportable segments and reporting units: Thermal Products ("Thermal") and Electromechanical Solutions ("EMS"). Effective January 1, 2022, we reorganized our operating segments to better align with our plan to manage and report our business going forward. This change in our operating and reporting structure reflects the evolution of our business, particularly as a result of the broadening of our product portfolio through the acquisitions we completed in the fourth quarter of 2021, which are discussed more fully in Note 3. Accordingly, for 2022, we have three reportable segments which are also our reporting units: Electronic Test (which includes our semiconductor test equipment, flying probe and in-circuit testers), Environmental Technologies (which includes our thermal test, process and storage products) and Process Technologies (which includes our induction heating and video imaging products). Prior period information has been reclassified to be comparable to the current period's presentation. All of our operating segments have multiple products that we design, manufacture and market to our customers. Due to a number of factors, our products have varying levels of gross margin. These factors include, for example, the amount of engineering time required to develop the product, the market or customer to which we sell the product and the level of competing products available from other suppliers. The needs of our customers ultimately determine the products that we sell in a given time period. Therefore, the mix of products sold in a given period can change significantly when compared against the prior period. As a result, our consolidated gross margin may be significantly impacted by a change in the mix of products sold in a particular period. Markets As discussed further in Part 1, Item 1 "Markets" of our 2021 Form 10-K, we are focused on specific target markets which include automotive, defense/aerospace, industrial, life sciences, security as well as both the front-end and back-end of the semiconductor manufacturing industry ("semi" or "semi market"). The semi market, which includes both the broader semiconductor market, as well as the more specialized ATE and wafer processing sectors within the broader semiconductor market, has historically been the largest single market in which we operate. The semi market is characterized by rapid technological change, competitive pricing pressures and cyclical market patterns and is subject to periods of significant expansion or contraction in demand. Our intention is to continue diversifying our markets, our product offerings within the markets we serve and our customer base across all of our markets with the goal of reducing our dependence on any one market, product or customer. In particular, we are seeking to reduce the impact of volatility in the semi market on our results of operations. The portion of our business that is derived from the semi market is substantially dependent upon the demand for ATE by semiconductor manufacturers and companies that specialize in the testing of integrated circuits ("ICs") and, for our induction heating products, the demand for wafer processing equipment. Demand for ATE or wafer processing equipment is primarily driven by semiconductor manufacturers that are opening new, or expanding existing, semiconductor fabrication facilities or upgrading equipment, which in turn is dependent upon the current and anticipated market demand for ICs and products incorporating ICs. Such market demand can be the result of market expansion, development of new technologies or redesigned products to incorporate new features, or the replacement of aging equipment. In the past, the semi market has been highly cyclical with recurring periods of oversupply, which often severely impact the semi market's demand for the products we manufacture and sell into the market. This cyclicality can cause wide fluctuations in both our orders and revenue and, depending on our ability to react quickly to these shifts in demand, can significantly impact our results of operations. Market cycles are difficult to predict and, because they are generally characterized by sequential periods of growth or declines in orders and revenue during each cycle, year over year comparisons of operating results may not always be as meaningful as comparisons of periods at similar points in either up or down cycles. These periods of heightened or reduced demand can shift depending on various factors impacting both our customers and the markets that they serve. In addition, during both downward and upward cycles in the semi market, in any given quarter, the trend in both our orders and revenue can be erratic. This can occur, for example, when orders are canceled or currently scheduled delivery dates are accelerated or postponed by a significant customer or when customer forecasts and general business conditions fluctuate during a quarter. -25-
-------------------------------------------------------------------------------- While a significant portion of our orders and revenue are derived from the semi market, and our operating results generally follow the overall trend in the semi market, in any given period we may experience anomalies that cause the trend in our revenue from the semi market to deviate from the overall trend in the market. We believe that these anomalies may be driven by a variety of factors within the semi market, including, for example, changing product requirements, longer periods between new product offerings by OEMs and changes in customer buying patterns. In addition, in recent periods, we have seen instances when demand within the semi market is not consistent for each of our operating segments or for any given product within a particular operating segment. This inconsistency in demand can be driven by a number of factors but, in most cases, we have found that the primary reason is unique customer-specific changes in demand for certain products driven by the needs of their customers or markets served. Recently this has become more pronounced for our sales into the wafer processing sector within the broader semiconductor market due to the limited market penetration we have into this sector and the variability of orders we have experienced from the few customers we support. These shifts in market practices and customer-specific needs have had, and may continue to have, varying levels of impact on our operating results and are difficult to quantify or predict from period to period. Management has taken, and will continue to take, such actions it deems appropriate to adjust our strategies, products and operations to counter such shifts in market practices as they become evident. Acquisitions A key element to our strategy for growth is through acquisitions. As discussed more fully in Note 3 to our consolidated financial statements in this Report, during 2021, we completed three acquisitions that expanded our technology offerings, diversified our markets and customers and expanded our reach into
Europe. On October 6, 2021, we acquired substantially all of the assets of Z-Sciences (now North Sciences), a developer of ultra-cold storage solutions for the life sciences cold chain market. This small, tuck-in transaction enhances our technology, adds new talent, and provides a low-cost entry into this fast growing, fragmented market. This business is included in our Environmental Technologies segment. On October 28, 2021, we acquired substantially all of the assets of Videology, a global designer, developer and manufacturer of OEM digital streaming and image capturing solutions. The acquisition expanded our process technology offerings, diversified our reach into key target markets and broadened our customer base. This business is included in our Process Technologies segment. On December 21, 2021, we acquired Acculogic, a global manufacturer of robotics-based electronic production test equipment and application support services. The acquisition expanded our global reach and enhanced our product portfolio with leading technologies and automation services. This business is included in our Electronic Test segment.
Orders and backlog
The following table shows, for the periods indicated, the breakdown of orders received by operating segment and by market (in thousands).
Three Three Months Months Ended Ended March 31, Change December 31, Change 2022 2021 $ % 2021 $ % Orders: Electronic Test
$ 9,297 $ 10,484 $ (1,187 )(11 )% $ 5,324 $ 3,97375 % Environmental Technologies 6,914 5,644 1,270 23 % 6,468 446 7 % Process Technologies 8,852 9,102 (250 ) (3 )% 18,667 (9,815 ) (53 )% $ 25,063 $ 25,230 $ (167 )(1 )% $ 30,459 $ (5,396 )(18 )% Semi $ 12,382 $ 17,185 $ (4,803 )(28 )% $ 21,386 $ (9,004 )(42 )% Industrial 3,222 2,526 696 28 % 2,504 718 29 % Auto/EV 2,619 1,168 1,451 124 % 1,413 1,206 85 % Life Sciences 1,216 952 264 28 % 654 562 86 % Defense/Aerospace 1,851 1,110 741 67 % 862 989 115 % Security 153 - 153 n/a 1,620 (1,467 ) (91 )% Other 3,620 2,289 1,331 58 % 2,020 1,600 79 % $ 25,063 $ 25,230 $ (167 )(1 )% $ 30,459 $ (5,396 )(18 )% -26-
-------------------------------------------------------------------------------- Total consolidated orders for the three months ended
March 31, 2022were $25.1 millioncompared to $25.2 millionfor the same period in 2021 and $30.5 millionfor the three months ended December 31, 2021. Orders from customers in semi for the three months ended March 31, 2022declined 28% compared to the same period in 2021 and 42% compared to the three months ended December 31, 2021. During the first quarter of 2021, we experienced exceptionally strong demand from our back-end semi customers as the market was in a period of significant expansion. Demand from these customers in the first quarter of 2021 has moderated, which we believe reflects the typical purchasing cycle in this market as customers complete the installation and set-up of equipment purchased throughout 2021. In addition, orders in the fourth quarter of 2021 included a $10.0 millionorder for our front-end semi solutions which we did not expect to repeat in the first quarter of 2022. This order will ship over the next several quarters. Orders for the three months ended March 31, 2022as compared to both the same period in 2021 and the three months ended December 31, 2021reflected strong demand from the automotive market, in particular for electric vehicle ("EV") applications utilizing our induction heating technology and our newly acquired battery test solutions. Orders increased in life sciences as well, driven by demand for a variety of our technology solutions including digital imaging and induction heating. Demand from the defense/aerospace market for environmental technology solutions was also strong in the three months ended March 31, 2022. At March 31, 2022, our backlog of unfilled orders for all products was approximately $35.0 millioncompared with approximately $17.1 millionat March 31, 2021and $34.1 millionat December 31, 2021. The amounts at March 31, 2022and December 31, 2021included approximately $7.6 millionand $6.5 million, respectively, from acquired businesses. The significant increase in our backlog as compared to March 31, 2021primarily reflects the aforementioned $10.0 millionorder received from one of our front-end semi market customers during the fourth quarter of 2021 and the impact of the acquired businesses. Our backlog includes customer orders which we have accepted, essentially all of which we expect to deliver in 2022, subject to supply chain constraints. While backlog is calculated on the basis of firm purchase orders, a customer may cancel an order or accelerate or postpone currently scheduled delivery dates. Our backlog may be affected by the tendency of customers to rely on short lead times available from suppliers, including us, in periods of depressed demand. In periods of increased demand, there is a tendency towards longer lead times that has the effect of increasing backlog. As a result, our backlog at a particular date is not necessarily indicative of sales for any future period.
The following table presents, for the periods indicated, the breakdown of sales by operating segment and by market (in thousands).
Three Months Three Ended Months Ended December March 31, Change 31, Change 2022 2021 $ % 2021 $ % Revenue: Electronic Test
$ 8,778 $ 8,501 $ 2773 % $ 6,851 $ 1,92728 %
Technologies 6,993 6,198 795 13 % 7,176 (183 ) (3 )% Process Technologies 8,310 4,857 3,453 71 % 8,331 (21 ) - %
$ 24,081 $ 19,556 $ 4,52523 % $ 22,358 $ 1,7238 % Semi $ 13,390 $ 13,320 $ 701 % $ 12,284 $ 1,1069 %
Industrial 2,799 1,427 1,372 96 % 2,172 627 29 % Auto/EV 2,756 1,327 1,429 108 % 2,697 59 2 % Life Sciences 699 643 56 9 % 409 290 71 % Defense/Aerospace 1,493 1,252 241 19 % 1,322 171 13 % Security 574 - 574 n/a 693 (119 ) (17 )% Other 2,370 1,587 783 49 % 2,781 (411 ) (15 )%
$ 24,081 $ 19,556 $ 4,52523 % $ 22,358 $ 1,7238 % Total consolidated revenue for the three months ended March 31, 2022was $24.1 millioncompared to $19.6 millionfor the same period in 2021 and $22.4 millionfor the three months ended December 31, 2021. Revenue for the three months ended March 31, 2022included $4.0 millionfrom the businesses we acquired during the fourth quarter of 2021, as previously discussed. Acquired businesses accounted for $1.5 millionof revenue during the fourth quarter of 2021. -27- -------------------------------------------------------------------------------- Organic growth in revenue for the three months ended March 31, 2022was 3% compared to the same period in 2021 and reflected demand from the automotive market, in particular EVs, as well as industrial markets. The acquired businesses contributed to growth in life sciences, security and other markets. Revenue from the semi market was relatively unchanged compared to the same period in 2021 as demand from front-end semi customers offset the decline in sales to the back-end semi customers which were exceptionally strong in the same period in 2021, as previously mentioned. Compared with the three months ended December 31, 2021, revenue excluding acquired businesses declined approximately 4% largely reflecting logistics and supply chain constraints that did not allow us to ship all of the orders we had planned to ship during the first quarter of 2022. The incremental increase from acquired businesses primarily reflects that we owned these businesses for the full quarter while we only had revenue in the fourth quarter of 2021 from the respective dates of acquisition through December 31, 2021.
The ongoing war between
Russiaand Ukrainecontinues to contribute to global inflationary pressures and the availability of certain raw materials produced in that region, further exacerbating global supply chain challenges that emerged after the onset of the COVID-19 pandemic as described below. As discussed in Part 1, Item IA "Risk Factors" in our 2021 Form 10-K, Acculogic, which we acquired in December 2021, purchases certain material from a key sole-source supplier in Belarus, which is bordered by Russiato the east and northeast and Ukraineto the south. We estimate that we currently have a six to nine month supply of this material. Since February 2022, we have been working through the process of qualifying an alternate supplier for this material. Although we expect to have completed that qualification by the end of the second quarter of 2022, if we do not successfully identify and qualify an alternate vendor for this material, our revenue and earnings could be adversely affected in future periods. In addition, while we were able to mitigate a significant portion of the supply chain and logistics challenges that we encountered in the first quarter of 2022, we have approximately $1.0 millionof products that we were not able to ship during the quarter because of such constraints. We expect to ship all of such products during the second quarter of 2022. However, we expect to continue to experience increased prices, lack of availability and logistics delays for the foreseeable future. The actions we are taking to mitigate these risks include qualifying new vendors as alternate sources in our supply chain, increasing our inventory of raw materials and ordering further in advance of when we expect to need materials than has been our practice in the past. We are also increasing the prices that we charge our customers as a result of increased raw material expenses, and we are working with our customers to find alternate options for the shipment of products where they control aspects of the logistics process. However, the situation is evolving and shifting rapidly at times, and the success of our efforts to mitigate and address the impacts on our business may not be successful. As a result, we could see increases in our costs or reduced revenues which would impact the level of our earnings in future periods. Please refer to Part 1, Item 1A of our 2021 Form 10-K for further discussion of the risks associated with our business operations, including risks associated with foreign operations. COVID-19 Pandemic With respect to the COVID-19 pandemic, we are following the guidance of the Centers for Disease Control and Preventionand the local regulatory authorities in regions outside the U.S.While in most cases we are no longer requiring employees to wear masks indoors in our domestic locations, in certain of our facilities, where we have experienced a recent increase in the number of employees contracting the virus, we have re-instituted a mask requirement. We are encouraging all employees to receive COVID-19 vaccinations and boosters, if possible. We are continuing to conduct temperature screenings and encouraging all employees to maintain social distancing when appropriate. We are also continuing to allow employees to work remotely either part-time or full-time in circumstances when possible. We are still assessing the impact of the recent increase in cases in certain of our facilities and exploring alternatives to address the lost production time. With regard to the recent shutdowns in China, we are working with our customers to identify alternate plans for delivery of our products to this region. If the spread of COVID-19 or its variants continues to worsen, we may experience additional lost production time or further interruption in our ability to ship our products to our customers. In addition, if one or more of our significant customers or suppliers is impacted, or significant additional governmental regulations and restrictions are imposed, our business in the future could be negatively impacted. We continue to monitor the situation closely and will adjust our operations as necessary to protect the health and well-being of our employees. To the extent that further governmental mandates or restrictions are implemented in the future, we currently expect to be able to continue to operate our business in a manner similar to how we have operated over the past year. Results of Operations The results of operations for all of our operating segments are generally affected by the same factors described in the Overview section above. Separate discussions and analyses for each segment would be repetitive. The discussion and analysis that follows, therefore, is presented on a consolidated basis and includes discussion of factors unique to each segment where significant to an understanding of that segment. -28- --------------------------------------------------------------------------------
Three months completed
Revenue. Revenue was
$24.1 millionfor the three months ended March 31, 2022compared to $19.6 millionfor the same period in 2021, an increase of $4.5 million, or 23%. We believe the increase in our revenue during the first quarter of 2022 primarily reflects the factors previously discussed in the Overview section. Gross Margin. Our consolidated gross margin was 46% of revenue for the three months ended March 31, 2022as compared to 49% of revenue for the same period in 2021. The decrease in our gross margin primarily reflects a combination of an increase in our component material costs as a percentage of revenue, reflecting changes in product and customer mix, and an increase in our direct labor as a percentage of revenue, reflecting an increase in the relative labor component of our cost structure. This increase reflects both the impact of the acquired businesses as well as increases in the average rates paid for labor as compared to the same period in 2021. The increase in labor rates reflects both inflation and merit increases given on April 1, 2021. To a lesser extent, there was also an increase in our fixed operating costs as a percent of revenue, reflecting both the impact of the acquired businesses as well as headcount investments in our legacy business. Selling Expense. Selling expense was $3.5 millionfor the three months ended March 31, 2022compared to $2.4 millionfor the same period in 2021 an increase of $1.1 million, or 44%. The acquired businesses account for approximately $721,000of this increase. The remaining increase primarily reflects headcount investments and increased travel across all our segments. These increases were partially offset by a decrease in commission expense, reflecting changes in customer mix. Engineering and Product Development Expense. Engineering and product development expense was $1.9 millionfor the three months ended March 31, 2022compared to $1.3 millionfor the same period in 2021 an increase of $602,000, or 46%. The acquired businesses account for approximately $478,000of this increase. The remaining increase primarily reflects headcount investments and an increase in supplies used in product development. These increases were partially offset by a reduction in legal fees related to our intellectual property. General and Administrative Expense. General and administrative expense was $4.8 millionfor the three months ended March 31, 2022compared to $3.2 millionfor the same period in 2021 an increase of $1.7 million, or 53%. The acquired businesses account for approximately $1.3 millionof this increase. The remaining increase primarily reflects headcount investments as well as an increase in professional fees paid to various third parties who assist us with our strategic initiatives and regulatory compliance. Restructuring and Other Charges. For the three months ended March 31, 2021, we recorded $55,000in restructuring and other charges related to the consolidation of our EMSmanufacturing operations. There were no similar charges in the three months ended March 31, 2022. Income Tax Expense. For the three months ended March 31, 2022, we recorded income tax expense of $78,000compared to income tax expense of $366,000for the same period in 2021. Our effective tax rate was 12% for the three months ended March 31, 2022compared to 14% for the same period in 2021. On a quarterly basis, we record income tax expense or benefit based on the expected annualized effective tax rate for the various taxing jurisdictions in which we operate our businesses.
Cash and capital resources
As discussed more fully in the Overview, our business and results of operations are substantially dependent upon the demand for ATE by semiconductor manufacturers and companies that specialize in the testing of ICs. The cyclical and volatile nature of demand for ATE makes estimates of future revenue, results of operations and net cash flows difficult. Our primary historical source of liquidity and capital resources has been cash flow generated by our operations. In 2021, we also utilized our new credit facility, which is discussed further in the Overview and below, to fund our acquisitions. We manage our businesses to maximize operating cash flows as our primary source of liquidity for our short-term cash requirements, as discussed below. We use cash to fund growth in our operating assets, for new product research and development, for acquisitions and for stock repurchases. We currently anticipate that any additional long-term cash requirements related to our strategy would be funded through a combination of our cash and cash equivalents, our new credit facility or by issuing equity. -29- --------------------------------------------------------------------------------
Credit Facility As discussed in Note 11 to our consolidated financial statements in this Report, on
October 15, 2021, we entered into the October 2021Agreement with M&T. The October 2021Agreement includes a $25 millionTerm Note and a $10 millionrevolving credit facility and replaces our prior credit facility with M&T. The October 2021Agreement has a five-year contract period that expires on October 15, 2026and draws under the Term Note will be permissible for two years. The principal balance of the revolving credit facility and the principal balance of any amount drawn under the Term Note will accrue interest based on the Secured Overnight Financing Rate or a bank-defined base rate plus an applicable margin, depending on leverage. The October 2021Agreement includes customary affirmative, negative and financial covenants, including a maximum ratio of consolidated funded debt to consolidated EBITDA and a fixed charge coverage ratio. Our obligations under the October 2021Agreement are secured by liens on substantially all of our tangible and intangible assets. On October 28, 2021, we drew $12 millionunder the Term Note to finance the acquisition of Videology. We also entered into an interest rate swap agreement with M&T as of this date which is designed to protect us against fluctuations in interest rates during the five-year repayment and amortization period. As a result, the annual interest rate we expect to pay for this draw under the Term Note is fixed at approximately 3.2% based on current leverage. On December 29, 2021, we drew $8.5 millionunder the Term Note to finance the acquisition of Acculogic. We did not enter into an interest rate swap agreement with M&T related to this draw. The annual interest rate we expect to pay for this draw under the Term Note is variable. At December 31, 2021, it was approximately 2.1% based on current leverage. At March 31, 2022, there were no amounts borrowed under our revolving credit facility. This facility has a total borrowing availability of $10.0 million. At March 31, 2022we had utilized $20.5 millionof the availability under our Term Note and we had $4.5 millionremaining available under our Term Note.
Our cash and cash equivalents and working capital were as follows (in thousands): March 31, December 31, 2022 2021 Cash and cash equivalents
$ 17,211 $ 21,195Working capital $ 27,122 $ 27,005As of March 31, 2022, $3.5 million, or 20%, of our cash and cash equivalents was held by our foreign subsidiaries. We currently expect our cash and cash equivalents, in combination with the borrowing capacity available under our revolving credit facility and the anticipated net cash to be provided by our operations in the next twelve months to be sufficient to support our short-term working capital requirements and other corporate requirements. Our revolving credit facility is discussed in Note 11 to our consolidated financial statements. Our material short-term cash requirements include payments due under our various lease agreements, recurring payroll and benefits obligations to our employees, purchase commitments for materials that we use in the products we sell and principal and interest payments on our debt. We estimate that our minimum short-term working capital requirements currently range between $8.0 millionand $10.0 million. We also anticipate making investments in our business in the next twelve months including hiring of additional staff, updates to our website and other systems and investments related to our geographic and market expansion efforts. We expect our current cash and cash equivalents, in combination with the borrowing capacity available under our revolving credit facility and the anticipated net cash to be provided by our operations to be sufficient to support these additional investments as well as our current short-term cash requirements. Our current strategy for growth includes pursuing acquisition opportunities for complementary businesses, technologies or products. As discussed further in the Overview, on October 28, 2021, we acquired substantially all of the assets of Videology and on December 21, 2021, we completed the acquisition of Acculogic. We utilized $20.5 millionunder our new credit facility to finance these acquisitions. As previously discussed, we currently anticipate that any additional long-term cash requirements related to our strategy would be funded through a combination of our cash and cash equivalents, the remaining availability under our new credit facility or by issuing equity. Cash Flows Operating Activities. For the three months ended March 31, 2022, we recorded net earnings of $577,000. Net cash used in operations during this period was $2.8 million. During the three months ended March 31, 2022, we had non-cash charges of $1.3 millionfor depreciation and amortization which included $309,000of amortization related to our ROU assets. Our operating lease liabilities declined $346,000during this same period. During the three months ended March 31, 2022, we also recorded $372,000for amortization of deferred compensation expense related to stock-based awards. Accounts receivable increased $832,000during the three months ended March 31, 2022, reflecting the increase in revenue in the first quarter of 2022, while inventories and accounts payable increased $2.2 millionand $1.6 million, respectively, also reflecting the increase in business levels. Accrued wages and benefits decreased $1.2 millionduring the three months ended March 31, 2022reflecting the payment in March 2022of profit-based bonuses accrued in 2021 on our results for the 2021 year. -30- -------------------------------------------------------------------------------- Investing Activities. During the three months ended March 31, 2022, purchases of property and equipment were $335,000, primarily reflecting leasehold improvements to our facility in Mansfield, Massachusettsfor the space that our Videology subsidiary will be occupying in the second quarter of 2022. These improvements were funded using our working capital. We have no significant commitments for capital expenditures for the balance of 2022; however, depending upon changes in market demand or manufacturing and sales strategies, we may make such purchases or investments as we deem necessary and appropriate. These additional cash requirements would be funded by our cash and cash equivalents, anticipated net cash to be provided by operations and our revolving credit facility.
Fundraising activities. In the three months ended
New or recently adopted accounting standards
See the notes to our consolidated financial statements in this report for information regarding the implementation and impact of new or recently adopted accounting standards.
Critical Accounting Estimates The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to inventories, long-lived assets, goodwill, identifiable intangibles, contingent consideration liabilities and deferred income tax valuation allowances. We base our estimates on historical experience and on appropriate and customary assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Some of these accounting estimates and assumptions are particularly sensitive because of their significance to our consolidated financial statements and because of the possibility that future events affecting them may differ markedly from what had been assumed when the financial statements were prepared. As of
March 31, 2022, there have been no significant changes to the accounting estimates that we have deemed critical. Our critical accounting estimates are more fully described in our 2021 Form 10-K.
Off-balance sheet arrangements
There were no off-balance sheet arrangements during the three months ended
March 31, 2022that have or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.
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