# Richardson Electronics, LTD.: Form 10-Q for the period ended Feb 26, 2022

- Company: [Richardson Electronics, LTD.](/companies/rell.md) (CIK 355948)
- Form: 10-Q
- Filed: 2022-04-07
- Accepted by EDGAR: Apr 7, 2022, 12:06 ET
- Period: 2022-02-26
- Accession: 0001564590-22-013781
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/355948/000156459022013781/rell-10q_20220226.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/355948/000156459022013781/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-02-26.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2021-11-26 to 2022-02-26 | $55.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2021-05-30 to 2022-02-26 | $163.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2021-11-26 to 2022-02-26 | $37.7m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2021-05-30 to 2022-02-26 | $111.5m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2021-11-26 to 2022-02-26 | $17.6m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2021-05-30 to 2022-02-26 | $51.5m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2021-11-26 to 2022-02-26 | $13.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2021-05-30 to 2022-02-26 | $40.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2021-11-26 to 2022-02-26 | $3.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2021-05-30 to 2022-02-26 | $11.0m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2021-11-26 to 2022-02-26 | $609.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2021-05-30 to 2022-02-26 | $1.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-11-28 to 2022-02-26 | $2.9m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2021-05-30 to 2022-02-26 | $9.6m | us-gaap:NetIncomeLoss |
| Diluted shares (weighted) | 3 months, 2021-11-26 to 2022-02-26 | 12,027,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2021-05-27 to 2022-02-26 | 11,724,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2021-11-28 to 2022-02-26 | −$1.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Operating cash flow | 9 months, 2021-05-30 to 2022-02-26 | −$1.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2021-11-28 to 2022-02-26 | $554.0k | us-gaap:PaymentsToAcquireProductiveAssets |
| Capital expenditure | 9 months, 2021-05-30 to 2022-02-26 | $2.2m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2021-11-28 to 2022-02-26 | $806.0k | us-gaap:PaymentsOfDividendsCommonStock |
| Dividends paid | 9 months, 2021-05-30 to 2022-02-26 | $2.4m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2022-02-26 | $39.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-02-26 | $147.8m | us-gaap:AssetsCurrent |
| Total assets | at 2022-02-26 | $170.7m | us-gaap:Assets |
| Current liabilities | at 2022-02-26 | $37.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-02-26 | $41.1m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-02-26 | $129.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 30,608 characters.

*Certain statements in this report may constitute “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. The terms “may,” “should,” “could,” “anticipate,” “believe,” “continues,” “estimate,” “expect,” “intend,” “objective,” “plan,” “potential,” “project” and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These statements are based on management’s current expectations, intentions or beliefs and are subject to a number of factors, assumptions and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences or that might otherwise impact the business include; economic, labor and political systems and conditions; global business disruption caused by the Russia invasion in Ukraine and related sanctions: currency exchange fluctuations; and the ability of the Company to manage its growth and the risk factors set forth in our Annual Report on Form 10-K filed on August 2, 2021 We undertake no obligation to update any such factor or to publicly announce the results of any revisions to any forward-looking statements contained herein whether as a result of new information, future events or otherwise.*

*In addition, while we do, from time to time, communicate with securities analysts, it is against our policy to disclose to them any material non-public information or other confidential commercial information. Accordingly, stockholders should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility.*

### INTRODUCTION

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to assist the reader in better understanding our business, results of operations, financial condition, changes in financial condition and significant developments. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes appearing elsewhere in this filing. This section is organized as follows:

- **Business Overview**
- **Results of Operations –** an analysis and comparison of our consolidated results of operations for the three and nine month periods ended February 26, 2022 and February 27, 2021, as reflected in our consolidated statements of comprehensive income.
- **Liquidity, Financial Position and Capital Resources –** a discussion of our primary sources and uses of cash for the nine month periods ended February 26, 2022 and February 27, 2021, and a discussion of changes in our financial position.

### Business Overview

Richardson Electronics, Ltd. is a leading global manufacturer of engineered solutions, power grid and microwave tubes, and related consumables; power conversion and RF and microwave components; high-value replacement parts, tubes, and service training for diagnostic imaging equipment; and customized display solutions. More than 60% of our products are manufactured in LaFox, Illinois, Marlborough, Massachusetts, or Donaueschingen, Germany, or by one of our manufacturing partners throughout the world. All our partners manufacture to our strict specifications and per our supplier code of conduct. We serve customers in the alternative energy, healthcare, aviation, broadcast, communications, industrial, marine, medical, military, scientific, and semiconductor markets. The Company’s strategy is to provide specialized technical expertise and “engineered solutions” based on our core engineering and manufacturing capabilities. The Company provides solutions and adds value through design-in support, systems integration, prototype design and manufacturing, testing, logistics, and aftermarket technical service and repair through its global infrastructure.

Some of the Company's products are manufactured in China and are imported into the United States. The Office of the United States Trade Representative ("USTR") instituted additional 10% to 25% tariffs on the importation of a number of products into the United States from China effective July 6, 2018, with additional products added August 23, 2018 and September 24, 2018. These additional tariffs are a response to what the USTR considers to be certain unfair trade practices by China. A number of the Company's products manufactured in China are now subject to these additional duties of 25% when imported into the United States.

Management continues to work with its suppliers as well as its customers to mitigate the impact of the tariffs on our customers’ markets. However, if the Company is unable to successfully pass through the additional cost of these tariffs, or if the higher prices reduce demand for the Company's products, it will have a negative effect on the Company's sales and gross margins.

We have three operating and reportable segments, which we define as follows:

Power and Microwave Technologies Group (“PMT”) combines our core engineered solutions capabilities, power grid and microwave tube business with new disruptive RF, Wireless and Power technologies. As a designer, manufacturer, technology partner and authorized distributor, PMT’s strategy is to provide specialized technical expertise and engineered solutions based on our core engineering and manufacturing capabilities on a global basis. We provide solutions and add value through design-in support, systems integration, prototype design and manufacturing, testing, logistics and aftermarket technical service and repair—all through our existing global infrastructure. PMT’s focus is on products for power, RF and microwave applications for customers in 5G, alternative energy, aviation, broadcast, communications, industrial, marine, medical, military, scientific and semiconductor markets. PMT focuses on various applications including broadcast transmission, CO2 laser cutting, diagnostic imaging, dielectric and induction heating, high energy transfer, high voltage switching, plasma, power conversion, radar and radiation oncology. PMT also offers its customers technical services for both microwave and industrial equipment.

Canvys provides customized display solutions serving the corporate enterprise, financial, healthcare, industrial and medical original equipment manufacturers markets. Our engineers design, manufacture, source and support a full spectrum of solutions to match the needs of our customers. We offer long term availability and proven custom display solutions that include touch screens, protective panels, custom enclosures, All-In-One computers, specialized cabinet finishes and application specific software packages and certification services. Our volume commitments are lower than the large display manufacturers, making us the ideal choice for companies with very specific design requirements. We partner with both private label manufacturing companies and leading branded hardware vendors to offer the highest quality display and touch solutions and customized computing platforms.

Healthcare manufactures, repairs, refurbishes and distributes high value replacement parts and equipment for the healthcare market including hospitals, medical centers, asset management companies, independent service organizations and multi-vendor service providers. Products include diagnostic imaging replacement parts for CT and MRI systems; replacement CT and MRI tubes; CT service training; MRI coils, cold heads and RF amplifiers; hydrogen thyratrons, klystrons, magnetrons; flat panel detector upgrades; pre-owned CT systems; and additional replacement solutions currently under development for the diagnostic imaging service market. Through a combination of newly developed products and partnerships, service offerings and training programs, we believe we can help our customers improve efficiency while lowering the cost of healthcare delivery.

We currently have operations in the following major geographic regions: North America, Asia/Pacific, Europe and Latin America.

### RESULTS OF OPERATIONS

### Financial Summary – Three Months Ended February 26, 2022

- The third quarter of fiscal 2022 and fiscal 2021 each contained 13 weeks.
- Net sales during the third quarter of fiscal 2022 were $55.3 million, an increase of 22.3%, compared to net sales of $45.2 million during the third quarter of fiscal 2021.
- Gross margin decreased to 31.8% during the third quarter of fiscal 2022 compared to 34.9% during the third quarter of fiscal 2021.
- Selling, general and administrative expenses were $13.9 million or 25.2% of net sales, during the third quarter of fiscal 2022 compared to $15.5 million, including the $1.6 million legal settlement, or 34.2% of net sales, during the third quarter of fiscal 2021.
- Operating income during the third quarter of fiscal 2022 was $3.6 million compared to $0.3 million during the third quarter of fiscal 2021.
- Net income during the third quarter of fiscal 2022 was $2.9 million compared to $0.2 million during the third quarter of fiscal 2021.

### Financial Summary – Nine Months Ended February 26, 2022

- The first nine months of fiscal 2022 and fiscal 2021 each contained 39 weeks.
- Net sales during the first nine months of fiscal 2022 were $163.0 million, an increase of 28.9%, compared to net sales of $126.5 million during the first nine months of fiscal 2021.
- Gross margin decreased to 31.6% during the first nine months of fiscal 2022 compared to 33.6% during the first nine months of fiscal 2021.
- Selling, general and administrative expenses were $40.6 million or 24.9% of net sales, during the first nine months of fiscal 2022 compared to $41.9 million, including the $1.6 million legal settlement, or 33.2% of net sales, during the first nine months of fiscal 2021.
- Operating income during the first nine months of fiscal 2022 was $11.0 million compared to $0.6 million during the first nine months of fiscal 2021.
- Net income during the first nine months of fiscal 2022 was $9.6 million compared to a net loss of $0.2 million during the first nine months of fiscal 2021.

### Net Sales and Gross Profit Analysis

Net sales by segment and percent change during the third quarter and first nine months of fiscal 2022 and fiscal 2021 were as follows (*in thousands):*

| Net Sales | Three Months Ended February 26, 2022 | February 27, 2021 | FY22 vs. FY21 % Change |
| --- | ---: | ---: | ---: |
| PMT | $44,032 | $35,237 | 25.0% |
| Canvys | 8,141 | 7,078 | 15.0% |
| Healthcare | 3,135 | 2,920 | 7.4% |
| Total | $55,308 | $45,235 | 22.3% |

|  | Nine Months Ended February 26, 2022 | February 27, 2021 | FY22 vs. FY21 % Change |
| --- | ---: | ---: | ---: |
| PMT | $128,778 | $98,418 | 30.8% |
| Canvys | 25,732 | 20,491 | 25.6% |
| Healthcare | 8,481 | 7,556 | 12.2% |
| Total | $162,991 | $126,465 | 28.9% |

During the third quarter of fiscal 2022, consolidated net sales increased 22.3% compared to the third quarter of fiscal 2021. Sales for PMT increased 25.0%, sales for Canvys increased 15.0% and sales for Healthcare increased 7.4%. The increase in PMT was mainly due to strong growth from our Power and Microwave new technology partners in various applications including Power Management and 5G infrastructure as well as increased shipments of our ULTRA3000. We also had growth in various Electron Device product lines. The increase in Canvys was primarily due to strong sales in the European and North American markets. The increase in Healthcare was primarily due to increases in part sales and an increase in demand for the ALTA750TM tubes.

During the first nine months of fiscal 2022, consolidated net sales increased 28.9% compared to the first nine months of fiscal 2021. Sales for PMT increased 30.8%, sales for Canvys increased 25.6% and sales for Healthcare increased 12.2%. The increase in PMT was mainly due to strong growth from our Power and Microwave new technology partners in various applications including Power Management and 5G infrastructure and increased revenue from our Semiconductor Wafer Fabrication customers buying engineered solutions. We also had growth in various Electron Device product lines. The increase in Canvys was primarily due to strong sales in the European and North American markets. The increase in Healthcare was primarily due to an increase in demand for the ALTA750TM tubes.

Gross profit by segment and percent of net sales for the third quarter and first nine months of fiscal 2022 and fiscal 2021 were as follows (*in thousands):*

| Gross Profit | Three Months Ended February 26, 2022 | % of Net Sales | February 27, 2021 | % of Net Sales |
| --- | ---: | ---: | ---: | ---: |
| PMT | $14,163 | 32.2% | $12,308 | 34.9% |
| Canvys | 2,618 | 32.2% | 2,493 | 35.2% |
| Healthcare | 788 | 25.1% | 965 | 33.0% |
| Total | $17,569 | 31.8% | $15,766 | 34.9% |

|  | Nine Months Ended February 26, 2022 | % of Net Sales | February 27, 2021 | % of Net Sales |
| --- | ---: | ---: | ---: | ---: |
| PMT | $41,080 | 31.9% | $33,530 | 34.1% |
| Canvys | 8,348 | 32.4% | 7,156 | 34.9% |
| Healthcare | 2,095 | 24.7% | 1,782 | 23.6% |
| Total | $51,523 | 31.6% | $42,468 | 33.6% |

Gross profit reflects the distribution and manufacturing product margin less manufacturing variances, inventory obsolescence charges, customer returns, scrap and cycle count adjustments, engineering costs and other provisions.

Consolidated gross profit increased to $17.6 million during the third quarter of fiscal 2022 compared to $15.8 million during the third quarter of fiscal 2021. Consolidated gross margin as a percentage of net sales decreased to 31.8% during the third quarter of fiscal 2022 from 34.9% during the third quarter of fiscal 2021, primarily due to product mix in PMT, higher freight costs in Canvys and increased component scrap expense and higher freight costs in Healthcare.

Consolidated gross profit increased to $51.5 million during the first nine months of fiscal 2022 compared to $42.5 million during the first nine months of fiscal 2021. Consolidated gross margin as a percentage of net sales decreased to 31.6% during the first nine months of fiscal 2022 from 33.6% during the first nine months of fiscal 2021, primarily due to product mix in PMT and higher freight costs in Canvys.

### Power and Microwave Technologies Group

PMT net sales increased 25.0% to $44.0 million during the third quarter of fiscal 2022 from $35.2 million during the third quarter of fiscal 2021. The increase was mainly due to strong growth from our Power and Microwave new technology partners in various applications including Power Management and 5G infrastructure as well as increased shipments of our ULTRA3000. We also had growth in various Electron Device product lines. Gross margin as a percentage of net sales decreased to 32.2% during the third quarter of fiscal 2022 as compared to 34.9% during the third quarter of fiscal 2021 due to product mix.

PMT net sales increased 30.8% to $128.8 million during the first nine months of fiscal 2022 from $98.4 million during the first nine months of fiscal 2021. The increase was mainly due to strong growth from our Power and Microwave new technology partners in various applications including Power Management and 5G infrastructure and increased revenue from our Semiconductor Wafer Fabrication customers buying engineered solutions. We also had growth in various Electron Device product lines. Gross margin as a percentage of net sales decreased to 31.9% during the first nine months of fiscal 2022 as compared to 34.1% during the first nine months of fiscal 2021 due to product mix.

### Canvys

Canvys net sales increased 15.0% to $8.1 million during the third quarter of fiscal 2022 from $7.1 million during the third quarter of fiscal 2021 primarily due to strong sales in the European as well as the North American markets. Gross margin as a percentage of net sales decreased to 32.2% during the third quarter of fiscal 2022 from 35.2% during the third quarter of fiscal 2021 due to the increasing freight costs resulting from the COVID-19 pandemic.

Canvys net sales increased 25.6% to $25.7 million during the first nine months of fiscal 2022 from $20.5 million during the first nine months of fiscal 2021 primarily due to strong sales in the European as well as the North America markets. Gross margin as a percentage of net sales decreased to 32.4% during the first nine months of fiscal 2022 from 34.9% during the first nine months of fiscal 2021 due to the increasing freight costs resulting from the COVID-19 pandemic.

### Healthcare

Healthcare net sales increased 7.4% to $3.1 million during the third quarter of fiscal 2022 from $2.9 million during the third quarter of fiscal 2021 primarily due to increases in part sales as well as an increase in demand for the ALTA750TM tubes. Gross margin as a percentage of net sales decreased to 25.1% during the third quarter of fiscal 2022 as compared to 33.0% during the third quarter of fiscal 2021 primarily due to increased component scrap expense in addition to rising freight costs resulting from the COVID-19 pandemic.

Healthcare net sales increased 12.2% to $8.5 million during the first nine months of fiscal 2022 from $7.6 million during the first nine months of fiscal 2021. The increase in sales was primarily due to an increase in demand for the ALTA750TM tubes. Gross margin as a percentage of net sales increased to 24.7% during the first nine months of fiscal 2022 as compared to 23.6% during the first nine months of fiscal 2021 primarily due to favorable product mix partially offset by rising freight costs resulting from the COVID-19 pandemic.

### Legal Settlement – Fiscal 2021

On April 2, 2021, as part of a settlement where the Company did not admit liability, Richardson agreed to pay Varex Imaging Corporation (“Varex”) $1.6 million to settle those claims. This settlement was recorded in selling, general and administrative expenses within the Consolidated Statements of Comprehensive Income for the third quarter of fiscal 2021.

### Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased to $13.9 million during the third quarter of fiscal 2022 from $15.5 million in the third quarter of fiscal 2021. The decrease was mainly due to the non-recurrence in fiscal 2022 of the $1.6 million legal settlement recorded in fiscal 2021. The foregoing section discusses the fiscal 2021 legal settlement. In addition, higher employee compensation expenses were offset by lower legal fees.

Selling, general and administrative expenses decreased to $40.6 million during the first nine months of fiscal 2022 from $41.9 million in the first nine months of fiscal 2021. The decrease was mainly due to the non-recurrence in fiscal 2022 of the $1.6 million legal settlement recorded in fiscal 2021. The foregoing section discusses the fiscal 2021 legal settlement. In addition, higher employee compensation expenses were partially offset by lower legal fees.

### Other Income/Expense

Other expense was $0.1 million during the third quarter of fiscal 2022, compared to less than $0.1 million for the third quarter of fiscal 2021. Other expense during the third quarter of fiscal 2022 was mainly a foreign exchange loss, as investment income was offset by other expenses. Our foreign exchange gains and losses are primarily due to the translation of U.S. dollars held in non-U.S. entities. We currently do not utilize derivative instruments to manage our exposure to foreign currency.

Other expense was less than $0.1 million during the first nine months of fiscal 2022, compared to $0.5 million for the first nine months of fiscal 2021. For the first nine months of fiscal 2022 investment income was more than offset by other expenses and the foreign exchange gain was minimal.

### Income Tax Provision

The income tax provision was $0.6 million and $0.1 million for the third quarter of fiscal 2022 and the third quarter of fiscal 2021, respectively. The difference in the tax provision for the third quarter of fiscal 2022 as compared to the third quarter of fiscal 2021 reflects higher foreign taxes, changes in our geographical distribution of income (loss) and state income tax provision due to temporary suspension of net operating loss utilization in Illinois and California.

We recorded an income tax provision of $1.3 million and $0.2 million for the first nine months of fiscal 2022 and the first nine months of fiscal 2021, respectively. The difference in the tax provision for the first nine months of fiscal 2022 as compared to the first nine months of fiscal 2021 reflects higher foreign taxes, changes in our geographical distribution of income (loss) and state income tax provision due to temporary suspension of net operating loss utilization in Illinois and California.

In the normal course of business, we are subject to examination by taxing authorities throughout the world. Generally, years prior to fiscal 2015 are closed for examination under the statute of limitation for U.S. federal, U.S. state and local or non-U.S. tax jurisdictions. We are currently under examination in Thailand (fiscal 2008 through 2011) and Germany (fiscal 2015 through 2018). Our primary foreign tax jurisdictions are Germany and the Netherlands. We have tax years open in Germany beginning in fiscal 2015 and the Netherlands beginning in fiscal 2018.

### Net Income (Loss) and Per Share Data

Net income during the third quarter of fiscal 2022 was $2.9 million, or $0.21 per diluted common share and $0.19 per Class B diluted common share as compared to $0.2 million during the third quarter of fiscal 2021 or $0.02 per diluted common share and $0.02 per Class B diluted common share.

Net income during the first nine months of fiscal 2022 was $9.6 million, or $0.71 per diluted common share and $0.64 per Class B diluted common share as compared to net loss of $0.2 million during the first nine months of fiscal 2021 or ($0.02) per diluted common share and ($0.02) per Class B diluted common share.

### LIQUIDITY, FINANCIAL POSITION AND CAPITAL RESOURCES

Our operations and cash needs have been primarily financed through income from operations and cash on hand.

Cash and cash equivalents were $39.1 million at February 26, 2022. Cash and cash equivalents by geographic area at February 26, 2022 consisted of $25.2 million in North America, $7.1 million in Europe, $1.4 million in Latin America and $5.4 million in Asia/Pacific. We repatriated $1.5 million to the United States in fiscal 2022. This amount includes $0.7 million in the first quarter from our entity in China, $0.3 million in the second quarter from our entity in Taiwan and $0.5 million in the third quarter from our entity in Japan. Although the Tax Cuts and Jobs Act generally eliminated federal income tax on future cash repatriation to the United States, cash repatriation may be subject to state and local taxes, withholding or similar taxes. See Note 7, *Income Taxes* of the notes to our consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended May 29, 2021, filed August 2, 2021 for further information.

Cash and cash equivalents were $43.3 million at May 29, 2021. Cash and cash equivalents by geographic area at May 29, 2021, consisted of $26.1 million in North America, $8.8 million in Europe, $1.2 million in Latin America and $7.2 million in Asia/Pacific. We repatriated a total of $0.9 million to the United States in fiscal 2021 from several of our foreign entities. This amount includes $0.7 million from our entities in Italy and South Korea in the third quarter of fiscal 2021 and $0.2 million from our entity in France in the fourth quarter of fiscal 2021.

The Company continues to monitor the impact of COVID-19, including the extent, duration and effectiveness of containment actions taken, the speed and extent of vaccination programs, as well as other global developments (including geopolitical tensions and the current conflict between Ukraine and Russia) and their impact on the Company’s supply chain, manufacturing and distribution operations, customers and employees, as well as the U.S. and world economy in general. However, due to the uncertain and constantly evolving impacts of the COVID-19 pandemic and other disruptions that have created extreme volatility in the capital markets and may continue to have further global economic consequences across the globe, the Company cannot currently predict the long-term impact on its operations and financial results. The uncertainties associated with the COVID-19 pandemic and its effects, along with other global volatility, include potential adverse effects on the overall economy, the Company's supply chain, transportation services, employees and customers, as well as the Company's revenues, earnings, liquidity and cash flows and may require significant actions in response, including expense reductions. Conditions surrounding COVID-19 and other matters of global concern change rapidly and additional impacts of which the Company is not currently aware may arise. Based on past performance and current expectations, we believe that the existing sources of liquidity, including current cash, will provide sufficient resources to meet known capital requirements and working capital needs through the next twelve months.

### Cash Flows from Operating Activities

Cash flows from operating activities primarily resulted from our net income (loss) adjusted for non-cash items and changes in our operating assets and liabilities.

Operating activities used $1.5 million of cash during the first nine months of fiscal 2022. We had a net income of $9.6 million during the first nine months of fiscal 2022, which included non-cash stock-based compensation expense of $0.5 million associated with the issuance of stock option and restricted stock awards, inventory reserve provisions of $0.2 million and depreciation and amortization expense of $2.6 million associated with our property and equipment as well as amortization of our intangible assets. Changes in our operating assets and liabilities used $14.4 million in cash during the first nine months of fiscal 2022, net of foreign currency exchange gains and losses, included an increase in accounts receivable of $7.4 million, an increase in inventory of $12.3 million and an increase in prepaid expenses of $1.1 million. Partially offsetting the cash utilization for accounts receivable, inventory and prepaid expenses was an increase in accounts payable and accrued liabilities of $6.3 million. The increase in accounts receivable was primarily due to increased sales. The majority of the inventory increase was to support the growth in LaFox manufacturing and the RF and microwave components business. The increase in accounts payable was related to the inventory increase and the increase in accrued liabilities was timing related.

Operating activities provided $3.9 million of cash during the first nine months of fiscal 2021. We had a net loss of $0.2 million during the first nine months of fiscal 2021, which included non-cash stock-based compensation expense of $0.5 million associated with the issuance of stock option and restricted stock awards, $0.7 million for inventory reserve provisions and depreciation and amortization expense of $2.6 million associated with our property and equipment as well as amortization of our intangible assets. Changes in our operating assets and liabilities resulted in cash provided of $0.3 million during the first nine months of fiscal 2021, net of foreign currency exchange gains and losses, included an increase in accrued liabilities of $4.3 million, partially offset by a decrease of $2.0 million in accounts payable, an increase in accounts receivable of $1.0 million and an increase in inventory of $0.9 million. The increase in accrued liabilities was mainly due to a legal settlement and timing of employee compensation and payroll tax payments as well as the timing of other payments. The decrease in our accounts payable was due to timing of payments for some of our larger vendors for both inventory and services. The increase in accounts receivable was primarily due to the sales increase in fiscal 2021. The majority of the inventory increase was to support the electron tube and RF and microwave components business.

### Cash Flows from Investing Activities

Cash flows from investing activities consisted primarily of capital expenditures and purchases and maturities of investments. Our purchases and proceeds from investments consist of time deposits and CDs. The purchasing of future investments varies from period to period due to interest and foreign currency exchange rates.

Cash used in investing activities of $2.2 million during the first nine months of fiscal 2022 was due to capital expenditures. Capital expenditures were primarily related to our Healthcare business, IT system and manufacturing facilities. The Company did not have any investment purchases or maturities in the first nine months of fiscal 2022.

Cash provided by investing activities of $5.2 million during the first nine months of fiscal 2021 included proceeds from the maturities of investments of $16.0 million, partially offset by purchases of investments of $9.0 million and $1.8 million in capital expenditures. Capital expenditures were primarily related to our Healthcare business and IT system.

### Cash Flows from Financing Activities

Cash flows used in financing activities consisted primarily of cash dividends and cash flows provided by financing activities consisted primarily of the proceeds from the issuance of stock.

Cash provided by financing activities of $0.1 million during the first nine months of fiscal 2022 primarily resulted from the $2.6 million proceeds from the issuance of stock less the $2.4 million of dividend payments to stockholders.

Cash used in financing activities of $2.5 million during the first nine months of fiscal 2021 primarily resulted from cash used to pay dividends.

All future payments of dividends are at the discretion of the Board of Directors. Dividend payments will depend on earnings, capital requirements, operating conditions and such other factors that the Board may deem relevant.

## Market risk

As filed, 853 characters.

### Risk Management and Market Sensitive Financial Instruments

We are exposed to many different market risks with the various industries we serve. The primary financial risk we are exposed to is foreign currency exchange, as certain operations, assets and liabilities of ours are denominated in foreign currencies. We manage these risks through normal operating and financing activities.

The interpretation and analysis of these disclosures should not be considered in isolation since such variances in exchange rates would likely influence other economic factors. Such factors, which are not readily quantifiable, would likely also affect our operations. Additional disclosure regarding various market risks are set forth in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended May 29, 2021, filed August 2, 2021.

## Controls and procedures

As filed, 1,611 characters.

(a) Evaluation of Disclosure Controls and Procedures

Management of the Company, with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of February 26, 2022.

Disclosure controls and procedures are intended to provide reasonable assurance that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

(b) Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the third quarter of fiscal 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 172 characters.

There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended May 29, 2021, filed August 2, 2021.

Filed Apr 7, 2022.
Source: SEC EDGAR, the filing index for accession 0001564590-22-013781. Last ingested by Listed: Nov 2, 2026, 11:55 ET. No prices; not investment advice.