INTEST CORP

Previous wording

In addition to historical information, this Quarterly Report on Form 10-Q for the period ended March 31, 2024 (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, such as statements of our plans, strategies and intentions, or our future performance or goals, projections of revenue, taxable earnings (loss), net earnings (loss), net earnings (loss) per share, capital expenditures and other financial items, that are based on management’s current expectations and estimates. Our forward-looking statements can often be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “could,” “will,” “should,” “plans,” “depending,” “forecasts,” “seeking,” “anticipates,” “goal,” “objective,” “target,” “estimates,” “future,” “strategy,” 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 expectations and estimates. These statements involve risks and uncertainties and are based upon various assumptions. These statements involve risks and uncertainties and are based upon various assumptions. Such risks and uncertainties include, but are not limited to:

Current wording

In addition to historical information, this Quarterly Report on Form 10-Q for the period ended June 30, 2024 (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, such as statements of our plans, strategies and intentions, or our future performance or goals, projections of revenue, taxable earnings (loss), net earnings (loss), net earnings (loss) per share, capital expenditures and other financial items, that are based on management’s current expectations and estimates. Our forward-looking statements can often be identified by the use of forward-looking terminology such as “believe,” “expect,” “may,” “could,” “will,” “plans,” “depending,” “seeking,” “anticipates,” “goal,” “objective,” “target,” “estimates,” “future,” “strategy,” 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 expectations and estimates. These statements involve risks and uncertainties and are based upon various assumptions. These statements involve risks and uncertainties and are based upon various assumptions. Such risks and uncertainties include, but are not limited to:

Previous wording

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.

Current wording

The semi market is 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.

Previous wording

As discussed further in Note 3 to our consolidated financial statements in this Report, on March 12, 2024 we entered into a stock purchase agreement to acquire all of the outstanding capital shares of Alfamation, a leading global provider of state-of-the-art test and measurement solutions for the automotive, life sciences and specialty consumer electronics markets. Alfamation was founded in 1991 and is headquartered in Milan, Italy. Alfamation also has a small sales and service subsidiary based in Suzhou City, China. Alfamation is included in our Electronic Test operating segment. The aggregate purchase price was approximately EUR 20 million comprised of EUR 18 million in cash, or $19.0 million, and 187,432 shares of our common stock valued at $2.1 million based on the closing price of our stock on the date of acquisition. The cash portion of the purchase price is subject to customary working capital adjustments. We currently expect this to result in an additional payment of EUR 542,000, or $593,000 for assets delivered at closing in excess of agreed upon thresholds. On the closing date, this equated to a total purchase price of approximately $22.4 million. The liabilities assumed in connection with the acquisition included debt of approximately EUR 8.6 million, or $9.4 million. The debt assumed is discussed further in Note 10 to our consolidated financial statements in this Report.

Current wording

As discussed further in Note 3 to our consolidated financial statements in this Report, on March 12, 2024 we entered into a stock purchase agreement to acquire all of the outstanding capital shares of Alfamation, a leading global provider of state-of-the-art test and measurement solutions for the automotive, life sciences and specialty consumer electronics markets. Alfamation was founded in 1991 and is headquartered in Milan, Italy. Alfamation also has a small sales and service subsidiary based in Suzhou City, China. Alfamation is included in our Electronic Test operating segment. The aggregate purchase price was approximately EUR 20 million comprised of EUR 18 million in cash, or $19.0 million, and 187,432 shares of our common stock valued at $2.1 million based on the closing price of our stock on the date of acquisition. The cash portion of the purchase price is subject to customary working capital adjustments. This resulted in an additional payment of EUR 129,000, or $141,000 for assets delivered at closing in excess of agreed upon thresholds. This equates to a total purchase price of approximately $21.9 million. The liabilities assumed in connection with the acquisition included debt of approximately EUR 10.3 million, or $11.3 million. The debt assumed is discussed further in Note 10 to our consolidated financial statements in this Report.

Previous wording

Total consolidated revenue for the three months ended March 31, 2024 was $29.8 million compared to $31.9 million for the same period in 2023 and $27.9 million for the three months ended December 31, 2023. The decrease in revenue for the first quarter of 2024 as compared to the same period in 2023 primarily reflects weak demand from semi, which was partially offset by an increase in revenue from the industrial and auto/EV markets. Revenue from the auto/EV market in the first quarter of 2024 includes $1.4 million from Alfamation which we acquired on March 12, 2024, as previously discussed. As discussed in the Overview, the semi market is highly cyclical resulting in significant swings in demand when period to period comparisons are to different points in a given cycle. As compared to the fourth quarter of 2023, the first quarter of 2024 reflects improved demand from semi, although this was partially offset by weakness from our customers in the industrial market.

Current wording

Total consolidated revenue for the three months ended June 30, 2024 was $34.0 million compared to $32.6 million for the same period in 2023 and $29.8 million for the three months ended March 31, 2024. Alfamation, which we acquired on March 12, 2024 as discussed under Acquisition above, contributed $9.7 million of revenue in the second quarter of 2024 and $1.4 million of revenue in the first quarter of 2024. This revenue is primarily from the auto/EV market, and, to a lesser extent, the life sciences market. The balance of our business had relatively flat or reduced revenue levels in the second quarter of 2024 as compared to the same period in 2023 primarily reflecting weak demand from both front-end and back-end semi customers. As discussed in the Overview, the semi market is highly cyclical resulting in significant swings in demand when period to period comparisons are to different points in a given cycle. The semi market is currently in a period of weakened demand which began to impact us in the second half of 2023 resulting in significantly reduced revenue levels from our customers in this market. There are indications from certain of our back-end semi customers that demand seems to be stabilizing in that market. We have not yet seen any similar indications from our front-end semi customers.

Previous wording

We use orders and backlog as key performance metrics to analyze and measure our financial performance and results of operations. We define orders as purchase orders that we have accepted from our customers. Orders are recorded based on the date received and accepted by us. We believe tracking orders is useful in planning for future production needs and staffing levels and we use information about the level of our orders to make decisions about resource allocation, including appropriate levels of inventory purchases and the balance of inventory we carry at any given time. Another important operational measure used is backlog. Backlog is a common measurement used in industries with extended lead times for order fulfillment, like those in which we operate. Backlog at any given date represents the amount of revenue that we expect to realize for unfilled orders received as of that date. We believe backlog is useful and use this information for similar reasons to those detailed above for orders. The majority of our backlog at any given time is expected to be fulfilled within the next twelve months. Depending on the terms of the purchase orders we have accepted, customers may have the ability to cancel an order or accelerate or postpone currently scheduled delivery dates. In some cases, we may have the ability to charge a cancellation fee if a purchase order we have accepted is later cancelled by a customer. Given that both orders and backlog are operational measures and our methodology for calculating orders and backlog do not meet the definition of a non-GAAP measure, as that term is defined by the SEC, a quantitative reconciliation for each is not required or provided.

Current wording

We use orders and backlog as key performance metrics to analyze and measure our financial performance and results of operations. We define orders as purchase orders that we have accepted from our customers. Orders are recorded based on the date received and accepted by us. We believe tracking orders is useful in planning for future production needs and staffing levels and we use information about the level of our orders to make decisions about resource allocation, including appropriate levels of inventory purchases and the balance of inventory we carry at any given time. Another important operational measure used is backlog. Backlog is a common measurement used in industries with extended lead times for order fulfillment, like those in which we operate. Backlog at any given date represents the amount of revenue that we expect to realize for unfilled orders received as of that date. We believe backlog is useful and use this information for similar reasons to those detailed above for orders. The majority of our backlog at any given time is expected to be fulfilled within the next twelve months. Depending on the terms of the purchase orders we have accepted, customers may have the ability to cancel an order or accelerate or postpone currently scheduled delivery dates. In some cases, we may have the ability to charge a cancellation fee if a purchase order we have accepted is later cancelled by a customer. Given that both orders and backlog are operational measures and our methodology for calculating orders and backlog do not meet the definition of a non-GAAP measure, as that term is defined by the Securities and Exchange Commission (the “SEC”), a quantitative reconciliation for each is not required or provided.

Previous wording

Total consolidated orders for the three months ended March 31, 2024 were $22.8 million compared to $30.8 million for the same period in 2023 and $27.5 million for the three months ended December 31, 2023. The decreases primarily represent the aforementioned decline in demand from semi in the first quarter of 2024 as compared to both the first and fourth quarters of 2023. As previously discussed, the semi market continues to be in a period of reduced demand which we believe primarily reflects the typical cyclicality of this industry. In addition, in the first quarter of 2024, we experienced declines in several of the other markets we serve, which we believe primarily reflects the timing of receipt of orders. Orders are often placed by our customers in large blocks with the associated delivery schedules allocated in smaller amounts over several quarters which can result in significant variation in total order levels from quarter to quarter. Our orders from the auto/EV market for the first quarter of 2024 include $1.8 million from Alfamation.

Current wording

Total consolidated orders for the three months ended June 30, 2024 were $26.2 million compared to $31.4 million for the same period in 2023 and $22.8 million for the three months ended March 31, 2024. Alfamation contributed $3.2 million of orders in the second quarter of 2024 and $1.8 million of orders in the first quarter of 2024. The decrease in total orders compared to the same period in 2023 primarily represents the aforementioned decline in demand from semi. In addition, we experienced declines in several of the other markets we serve during this period, which we believe primarily reflects the timing of receipt of orders. Orders are often placed by our customers in large blocks with the associated delivery schedules allocated in smaller amounts over several quarters which can result in significant variation in total order levels from quarter to quarter.

Previous wording

At March 31, 2024, our backlog of unfilled orders for all products was approximately $55.5 million compared with approximately $45.7 million at March 31, 2023 and $40.1 million at December 31, 2023. Our backlog at March 31, 2024 includes $22.8 million of backlog for Alfamation. Our backlog includes customer orders that we have accepted, substantially all of which we expect to deliver in 2024. 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.

Current wording

At June 30, 2024, our backlog of unfilled orders for all products was approximately $47.7 million compared with approximately $44.6 million at June 30, 2023 and $55.5 million at March 31, 2024. Our backlog at June 30, 2024 and March 31, 2024 included $16.3 million and $22.8 million, respectively, of backlog for Alfamation. Our backlog includes customer orders that we have accepted, substantially all of which we expect to deliver in the next twelve months. 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.

Previous wording

The ongoing war between Russia and Ukraine continues 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. Acculogic purchases certain material from a key sole-source supplier in Belarus, which is bordered by Russia to the east and northeast and Ukraine to the south. At present, we are still receiving shipments from this supplier, and we estimate that we have a six-to-nine-month supply of these parts that we are maintaining. We are currently in the process of qualifying an alternate supplier for these parts. We received prototype sample parts from the alternate supplier which we are now evaluating. We expect to complete this evaluation by the third quarter of 2024.

Current wording

The ongoing war between Russia and Ukraine continues 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. Acculogic purchases certain material from a key sole-source supplier in Belarus, which is bordered by Russia to the east and northeast and Ukraine to the south. At present, we are still receiving shipments from this supplier, and we estimate that we have a six-to-nine-month supply of these parts that we are maintaining. We are currently in the process of qualifying an alternate supplier for these parts. We received prototype sample parts from the alternate supplier which we are now evaluating. We expect to complete this evaluation by the fourth quarter of 2024.

Previous wording

In addition, while the supply chain and logistics challenges that we encountered throughout 2022 have eased and conditions appear to have stabilized, uncertainty in the global trade environment and the possibility of future global health or other crises remain. As a result, we expect that we may continue to experience increased prices, lack of availability and logistics delays from time to time for the foreseeable future. The actions we have taken and are continuing to take 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 have also increased the prices that we charge our customers, where appropriate, and continue to work with our customers to find alternate options for the shipment of products where they control aspects of the logistics process. However, the environment in which we operate is dynamic and shifts 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.

Current wording

In addition, while the supply chain and logistics challenges that we encountered throughout 2022 have eased, uncertainty in the global trade environment remains. As a result, we expect that we may continue to experience increased prices, lack of availability and logistics delays from time to time for the foreseeable future. The actions we have taken and are continuing to take 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 have also increased the prices that we charge our customers, where appropriate, and continue to work with our customers to find alternate options for the shipment of products where they control aspects of the logistics process. However, the environment in which we operate is dynamic and shifts 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.

Previous wording

Gross Margin. Our consolidated gross margin was 44% of revenue for the three months ended March 31, 2024 as compared to 47% of revenue for the same period in 2023. The decrease in our gross margin primarily reflects that our fixed operating costs were not as fully absorbed by the lower revenue levels in the first quarter of 2024 as compared to the same period in 2023. To a lesser extent, the absolute dollar value of our fixed operating costs increased $524,000 as compared to the same period in 2023. Alfamation accounted for approximately $288,000 of our fixed operating costs during the first quarter of 2024. The remainder of the increase in our fixed operating costs primarily reflects higher salary and benefits expense.

Current wording

Gross Margin. Our consolidated gross margin was 41% of revenue for the three months ended June 30, 2024 as compared to 46% of revenue for the same period in 2023. The decrease in our gross margin primarily reflects changes in product mix. The mix of products sold in the second quarter of 2024 had both relatively higher component material costs as a percentage of revenue and a higher labor component to the total cost than the mix of products sold in the same period in 2023. To a lesser extent, the decrease in our gross margin is a result of our fixed operating costs increasing in both absolute dollar terms and as a percentage of revenue in the second quarter of 2024 as compared to the same period in 2023. The increase in fixed operating costs is a result of the acquisition of Alfamation, which accounted for approximately $793,000 of our fixed operating costs during the second quarter of 2024. The fixed operating costs for the balance of our business declined somewhat compared to the same period in 2023, primarily reflecting lower facility related costs.

Previous wording

Engineering and Product Development Expense. Engineering and product development expense was $2.0 million for the three months ended March 31, 2024 compared to $1.9 million for the same period in 2023, an increase of $78,000 or 4%. Alfamation had relatively insignificant engineering expense for the period from March 13 to March 31, 2024. In the balance of our business, there were increases in salary and benefits expense and material used in product development projects in the first quarter of 2024 as compared to the same period in 2023.

Current wording

Engineering and Product Development Expense. Engineering and product development expense was $2.2 million for the three months ended June 30, 2024 compared to $2.0 million for the same period in 2023, an increase of $235,000 or 12%. Alfamation accounted for approximately $462,000 of our engineering expense during the second quarter of 2024. In the balance of our business, there were decreases in spending on material used in product development projects in the second quarter of 2024 as compared to the same period in 2023.

Previous wording

Income Tax Expense. For the three months ended March 31, 2024, we recorded income tax expense of $125,000 compared to income tax expense of $577,000 for the same period in 2023. Our effective tax rate was 16% for the three months ended March 31, 2024 compared to 17% for the same period in 2023. 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.

Current wording

Income Tax Expense. For the three months ended June 30, 2024, we recorded income tax expense of $66,000 compared to income tax expense of $572,000 for the same period in 2023. Our effective tax rate was 22% for the three months ended June 30, 2024 compared to 17% for the same period in 2023. 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.

Previous wording

Revenue. Revenue was $29.8 million for the three months ended March 31, 2024 compared to $31.9 million for the same period in 2023, a decrease of $2.1 million, or 7%. We believe the decrease in our revenue during the first quarter of 2024 reflects the factors previously discussed in the Overview section.

Current wording

Revenue. Revenue was $63.8 million for the six months ended June 30, 2024 compared to $64.5 million for the same period in 2023, a decrease of $662,000, or 1%. We believe the decrease in our revenue during the first six months of 2024 primarily reflects the factors previously discussed under “Revenue” in the Overview section above.

Previous wording

On September 20, 2022, we further amended the Loan Agreement by entering into a Third Amendment to Amended and Restated Loan and Security Agreement (the Loan Agreement as amended by the Third Amendment, the “Third Amended Loan Agreement”) and the Third Amended and Restated Delayed Draw Term Note 1A. Under the Third Amended Loan Agreement, the maximum loan amount that we may borrow under the Term Note increased from $25 million to $50.5 million, which raises the available funding at March 31, 2024 to $30 million. On May 2, 2024 we further amended our Third Amended Loan Agreement by entering into a Fourth Amendment to the Amended and Restated Loan and Security Agreement (the “Amended Loan Agreement”). Under the Amended Loan Agreement, the period during which we may request advances under the Term Note is extended until May 2, 2026, and the Term Note and revolving credit facility maturity date is extended from September 19, 2027 to May 2, 2031. At March 31, 2024, we had not borrowed any amounts under the $10 million Revolving Facility. Our borrowings under the Term Note are discussed below and occurred prior to entering into the Amended Loan Agreement. The principal balance of the Revolving Facility and the principal balance of any amount drawn under the Term Note accrues interest based on the Secured Overnight Financing Rate or a bank-defined base rate plus an applicable margin, depending on leverage. The Amended Loan Agreement includes customary affirmative, negative and financial covenants, including a maximum ratio of consolidated funded debt to consolidated EBITDA of not more than 3.0 to 1.0 and a fixed charge coverage ratio of not less than 1.25 to 1.0. Our obligations under the Amended Loan Agreement are secured by liens on substantially all of our tangible and intangible assets. At March 31, 2024, we were in compliance with all of the covenants included in the Credit Facility.

Current wording

On September 20, 2022, we further amended the Loan Agreement by entering into a Third Amendment to Amended and Restated Loan and Security Agreement (the Loan Agreement as amended by the Third Amendment, the “Third Amended Loan Agreement”) and the Third Amended and Restated Delayed Draw Term Note 1A. Under the Third Amended Loan Agreement, the maximum loan amount that we may borrow under the Term Note increased from $25 million to $50.5 million, which raises the available funding at March 31, 2024 to $30 million. On May 2, 2024 we further amended our Third Amended Loan Agreement by entering into a Fourth Amendment to the Amended and Restated Loan and Security Agreement (the “Amended Loan Agreement”). Under the Amended Loan Agreement, the period during which we may request advances under the Term Note is extended until May 2, 2026, and the Term Note and revolving credit facility maturity date is extended from September 19, 2027 to May 2, 2031. At June 30, 2024, we had not borrowed any amounts under the $10 million Revolving Facility. Our borrowings under the Term Note are discussed below and occurred prior to entering into the Amended Loan Agreement. The principal balance of the Revolving Facility and the principal balance of any amount drawn under the Term Note accrues interest based on the Secured Overnight Financing Rate or a bank-defined base rate plus an applicable margin, depending on leverage. The Amended Loan Agreement includes customary affirmative, negative and financial covenants, including a maximum ratio of consolidated funded debt to consolidated EBITDA of not more than 3.0 to 1.0 and a fixed charge coverage ratio of not less than 1.25 to 1.0. Our obligations under the Amended Loan Agreement are secured by liens on substantially all of our tangible and intangible assets. At June 30, 2024, we were in compliance with all of the covenants included in the Credit Facility, except for the fixed charge coverage ratio financial covenant which was 1.16 to 1.0 for the quarter ended June 30, 2024, for which we have received a one-time waiver from M&T.

Previous wording

At March 31, 2024, the total debt assumed in connection with the acquisition of Alfamation was valued at $9.4 million. The acquisition is discussed further in Note 3 to our consolidated financial statements in this Report and the debt is discussed further in Note 10 to our consolidated financial statements in this Report. This debt is comprised of both fixed and variable rate bank issued term loans as well as $2.1 million of short-term variable rate financing backed by Alfamation’s accounts receivable. This debt is spread across a number of different institutions with monthly, quarterly or half-yearly repayment schedules. The average interest rate being paid at March 31, 2024 was 1.9% for fixed rate debt and 5.0% for variable rate debt. The average rate for total debt at March 31, 2024 was 4.0%.

Current wording

At June 30, 2024, the total debt assumed in connection with the acquisition of Alfamation was valued at $11.1 million. The acquisition is discussed further in Note 3. This debt is comprised of both fixed and variable rate bank issued term loans as well as $4.8 million of short-term variable rate financing backed by Alfamation’s accounts receivable. This debt is spread across a number of different institutions with monthly, quarterly or half-yearly repayment schedules. The average interest rate being paid at June 30, 2024 was 2.8% for fixed rate debt and 5.0% for variable rate debt. The average rate for total debt at June 30, 2024 was 4.2%.

Previous wording

Total interest expense from all of our debt for the three months ended March 31, 2024 and 2023 was $140,000 and $182,000, respectively.

Current wording

Total interest expense for the six months ended June 30, 2024 and 2023 related to our various debt arrangements was $393 and $358, respectively.

Previous wording

As of March 31, 2024, $6.9 million, or 25% 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 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 Facility is discussed in Note 10 to our consolidated financial statements in this Report.

Current wording

As of June 30, 2024, $7.8 million, or 38%, 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 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 Facility is discussed in Note 10 to our consolidated financial statements in this Report.

Previous wording

Our current strategy for growth includes pursuing acquisition opportunities for complementary businesses, technologies or products. 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 the Term Note or by issuing equity. The borrowing availability under the Term Note was expanded in September 2022 as discussed above and in Note 10 to our consolidated financial statements in this Report.

Current wording

Our current strategy for growth includes pursuing acquisition opportunities for complementary businesses, technologies or products. 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 the Term Note or by issuing equity. The borrowing availability under the Term Note was expanded and extended in September 2022 and May 2024 as discussed above and in Note 10 to our consolidated financial statements in this Report.

Previous wording

Operating Activities. For the three months ended March 31, 2024, we recorded net earnings of $662,000. Net cash provided by operations during this period was $2.1 million. During the three months ended March 31, 2024, we had non-cash charges of $1.3 million for depreciation and amortization which included $403,000 of amortization related to our ROU assets. Our operating lease liabilities declined $447,000 during this same period. During the three months ended March 31, 2024, we recorded $349,000 for amortization of deferred compensation expense related to stock-based awards. During the first quarter of 2024, accounts receivable increased $982,000, inventories increased $396,000 and prepaid expenses and other current assets declined $508,000. During this same period, accrued wages and benefits increased $939,000 while customer deposits and deferred revenue (including deferred revenue, net of current portion) declined $782,000. All of these fluctuations represent normal variations due to varying timing of payments, receipt of cash from customers and normal accruals that are standard in our business operations.

Current wording

Operating Activities. For the six months ended June 30, 2024, we recorded net earnings of $892,000. Net cash used in operations during this period was $3.0 million. During the six months ended June 30, 2024, we had non-cash charges of $2.8 million for depreciation and amortization which included $685,000 of amortization related to our ROU assets. Our operating lease liabilities declined $765,000 during this same period. During the six months ended June 30, 2024, we recorded $913,000 for amortization of deferred compensation expense related to stock-based awards. Excluding the impact of the acquired assets, during the first six months of 2024, accounts receivable increased $5.7 million, accounts payable increased $1.9 million and inventories decreased $2.0 million. During this same period, prepaid expenses and other current assets decreased $1.3 million, customer deposits and deferred revenue (including deferred revenue, net of current portion) declined $936,000 and domestic and foreign taxes payable decreased $851,000. All of these fluctuations represent normal variations due to varying timing of payments, receipt of cash from customers and normal accruals that are standard in our business operations.

Previous wording

Investing Activities. During the three months ended March 31, 2024, we paid $18.9 million in net cash for the acquisition of Alfamation which is discussed in more detail in Note 3 to our consolidated financial statements in this Report. Purchases of property and equipment were $340,000, during this period, representing capital expenditures in the normal course of business. We have no significant commitments for capital expenditures for the balance of 2024; 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.

Current wording

Investing Activities. During the six months ended June 30, 2024, we paid $18.7 million in net cash for the acquisition of Alfamation which is discussed in more detail in Note 3 to our consolidated financial statements in this Report. Purchases of property and equipment were $656,000, during this period, representing capital expenditures in the normal course of business. We have no significant commitments for capital expenditures for the balance of 2024; 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.

Previous wording

Financing Activities. During the three months ended March 31, 2024, we had borrowings under Alfamation’s short-term borrowing arrangements of $273,000 and made principal payments on our long-term debt totaling $1.2 million. There were no other significant amounts used by or received from financing activities during the quarter.

Current wording

Financing Activities. During the six months ended June 30, 2024, we made principal payments on our long-term debt totaling $2.1 million. There were no other significant amounts used by or received from financing activities during the quarter.