FORWARD LOOKING STATEMENTS:




The following management's discussion and analysis of the financial condition
and results of operations of CyberOptics Corporation and its wholly-owned
subsidiaries ("we", "us" and "our") contains a number of estimates and
predictions that are forward looking statements rather than statements based on
historical fact. Among other matters, we discuss (i) a possible world-wide
recession or depression resulting from the economic consequences of the Covid-19
pandemic; (ii) the potential effect on our revenue and operating results of the
Covid-19 crisis on our customers and suppliers, the markets for our products and
the global supply chain; (iii) market conditions in the global SMT and
semiconductor capital equipment industries; (iv) the timing of orders and
shipments of our products, particularly our 3D MRS SQ3000™ and SQ3000™+
 Multi-Function systems for automated optical inspection ("AOI") and MX systems
for memory module inspection; (v) increasing price competition and price
pressure on our product sales, particularly our inspection and metrology
systems; (vi) the level of orders from our original equipment manufacturer
("OEM") customers; (vii) the availability of parts required to meet customer
orders; (viii) the effect of world events on our sales, the majority of which
are from foreign customers; (ix) rapid changes in technology in the electronics
and semiconductor markets; (x) product introductions and pricing by our
competitors; (xi) the success of our 3D technology initiatives; (xii) the market
acceptance of  our 3D MRS SQ3000™ and SQ3000+ Multi-Function systems and
products for semiconductor inspection and metrology; (xiii) the impact of lower
margin MX3000™ memory module inspection systems on our consolidated gross margin
in any future period; (xiv) risks related to cancellation or renegotiation of
orders we have received; (xv) the level of anticipated revenues, gross margins,
and expenses; (xvi) the timing of initial revenue and projected improvements in
gross margins from sales of new products that have been recently introduced,
that we have under development or that we anticipate introducing in the future
(xvii) risks related to inflation and its impact on our costs and future
profitability; (xviii) our assessment of trends in the surface mount technology
("SMT") and semiconductor capital equipment markets; (ixx) the ability to obtain
shareholder and regulatory approvals, or the possibility that they may delay our
proposed sale to Nordson (the Merger) or that such regulatory approval may
result in the imposition of conditions that cause the parties to abandon the
Merger; (xx) the risk that a condition to closing of the Merger may not be
satisfied (xxi) potential litigation relating to the proposed Merger that could
be instituted against us or our directors; (xxii) possible disruptions from the
proposed Merger that could harm our business; (xxiii) our ability to retain,
attract and hire key personnel; (xxiv) potential adverse reactions or changes to
relationships with customers, employees or suppliers resulting from the
announcement or completion of the Merger; (xxiv) potential business uncertainty,
including changes to existing business relationships during the pendency of the
Merger that could effect our financial performance; and (xxv) certain
restrictions during the pendency of the Merger that may impact our ability to
pursue certain business opportunities or strategic transactions.


Although we have made these statements based on our experience and expectations
regarding future events, there may be events or factors that we have not
anticipated.  Therefore, the accuracy of our forward-looking statements and
estimates are subject to a number of risks, including those risks identified in
our Annual Report on Form 10-K for the year ended December 31, 2021 and in Item
1A to this Form 10-Q.

MERGER WITH NORDSON CORPORATION




On August 7, 2022, we entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Nordson Corporation ("Nordson") and Meta Merger Company, a
wholly owned subsidiary of Nordson ("Merger Sub"), pursuant to which, subject to
the satisfaction or waiver of certain conditions, Merger Sub will merge with and
into the Company (the "Merger"). As a result of the Merger, Merger Sub will
cease to exist and the Company will survive as a wholly owned subsidiary of
Nordson. The Merger is presently expected to close not later than the fourth
quarter of calendar year 2022, subject to customary closing conditions,
including, without limitation, (i) the expiration or termination of the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act") and (ii) the requisite shareholder approval
being received.

Pursuant to the Merger Agreement, upon the consummation of the Merger (the
"Effective Time"), each share of the Company's no par value common stock issued
and outstanding immediately prior to the Effective Time, other than dissenting
shares, will be converted into the right to receive $54.00 in cash.  The Merger
Agreement contains customary representations and covenants that we must observe,
including certain interim operating covenants that may restrict our operations
during the pendency of the Merger, subject to certain exceptions. If the Merger
is completed, certain change of control and severance provisions of our
compensation arrangements will be triggered at the Effective Time. In addition,
the Merger Agreement also contains certain termination rights that may require
us to pay Nordson a $12.5 million termination fee. For additional details of the
Merger and the terms thereof, refer to the Merger Agreement, a copy of which is
included as Exhibit 2.1 to our Current Report on Form 8-K filed with the
Securities and Exchange Commission on August 8, 2022.

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RESULTS OF OPERATIONS

General


We are a leading global developer and manufacturer of high precision 3D sensors
and system products for inspection and metrology. We also develop and
manufacture our WaferSense® products, which is a family of wireless,
wafer-shaped sensors that provide measurements of critical factors in the
semiconductor fabrication process. We intend to leverage our sensor technologies
in the SMT and semiconductor industries to deliver profitable growth. A key
element of our strategy is the continued development and sale of high precision
3D sensors and system products based on our proprietary Multi-Reflection
Suppression™ (MRS™) technology. We believe that our MRS technology is a
breakthrough 3D optical technology for high-end inspection and metrology with
the potential to significantly expand our markets. Another key element in our
strategy is the continued development and introduction of new sensor
applications for our WaferSense® family of products.


We believe that conditions in the SMT and semiconductor capital equipment
markets have been favorable, and we believe market conditions will remain solid
for the remainder of 2022. Over the longer-term (i.e. the next several years),
we expect a growing number of opportunities in the markets for SMT and
semiconductor inspection and metrology. We believe that our 3D MRS sensor and
system products and our WaferSense family of products have the potential to
expand our presence in the markets for SMT and semiconductor capital equipment.


Manufacturing yield challenges, as electronics and semiconductors become more
complex, are driving the need for more precise inspection and metrology. We
believe 3D inspection and metrology represent high-growth segments in both the
SMT and semiconductor capital equipment markets. We believe our 3D MRS
technology platform is well suited for many applications in these markets,
particularly with respect to complex circuit boards and semiconductor wafer and
advanced packaging inspection and metrology applications. We are taking
advantage of current market trends by deploying our 3D MRS sensor technology in
the following products:

· Our SQ3000™ and SQ3000+™ Multi-Function systems for Automated Optical

Inspection (AOI), Solder Paste Inspection (SPI) and coordinate measurement

(CMM) applications, which are designed to expand our presence in markets

requiring high precision inspection and metrology. In these markets,

identifying defects has become highly challenging and critical due to smaller

semiconductor and electronics packaging and increasing component density on

circuit boards. The SQ3000+ Multi-Function system with its higher resolution

MRS sensor that inhibits reflection-based distortions caused by shiny

components and surfaces is capable of measuring feature sizes down to 50

microns and is specifically designed for high-end inspection and metrology

applications including advanced packaging, mini-LED and advanced SMT for

high-end electronics. We believe our 3D MRS sensor technology is uniquely

suited for many of these applications because of its ability to offer

microscopic image quality and superior measurement performance at production

line speeds.

· Our next generation ultra-high resolution three micron

pixel 3D NanoResolution MRS™ sensor, which is capable of measuring feature

sizes down to 25 microns accurately and at high speeds, and is suitable for

many semiconductor wafer and advanced packaging inspection and metrology

applications. We have adapted the software used in our SQ3000 Multi-Function


   systems to work with wafer handling equipment to facilitate sales of
   our 3D NanoResolution MRS sensor to OEM's and system integrators.

· Our next generation MX3000™ AOI system for 3D inspection of memory modules

following the singulation step of the manufacturing process. Two of the

world's three largest memory manufacturers and their subcontractors have now

purchased our MX3000 system. Additional orders for memory module inspection

are expected in future periods, and we believe the potential market

opportunity for our MX3000 system and 3D MRS sensors for memory module

inspection is significant.

· Our WX3000™ metrology and inspection system for semiconductor wafer and

advanced packing applications, which incorporates our next generation

ultra-high resolution 3D NanoResolution MRS sensor, performs 100% 3D and 2D

inspection and metrology simultaneously at high speeds and delivers

through-put of more than 25 wafers per hour. The WX3000 is suitable for many

high volume semiconductor wafer and advanced packaging inspection and

metrology applications for feature sizes down to 25-microns. We recently

received our first purchase order for the WX3000 and anticipate that sales of

sensors and systems for semiconductor wafer and advanced packaging inspection


   and metrology will provide us with long-term growth opportunities.




Revenue from our MRS-based products, including 3D AOI systems and high precision
3D MRS sensors, increased by $5.5 million or 26% to $26.8 million in the six
months ended June 30, 2022, from $21.3 million in the six months ended June
30, 2021. Over the long term, we anticipate continued increases in sales of
products based on our MRS technology in the SMT and semiconductor capital
equipment markets. In particular, we believe inspection and metrology for mini
LED, memory modules and semiconductor wafer and advanced packaging applications
represent significant long-term growth opportunities. We anticipate increasing
sales of MRS-based products by selling them to new OEM customers and system
integrators, and by expanding direct sales of inspection and metrology system
products to end-user customers.


We have continued to invest in our WaferSense family of products, because
fabricators of semiconductors and other customers view these products as
valuable tools for improving yields and productivity. We have recently
introduced several new WaferSense products to further increase our revenue
growth, and additional WaferSense applications are currently under development,
including Automatic Teaching Sensors (ATS) in both wafer and reticle formats and
products for wafer edge detection. Over the long-term, strong future sales
growth is anticipated for our WaferSense family of products.

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Our order backlog was $55.5 million at June 30, 2022, compared to $47.3 million
at December 31, 2021 and $45.3 million at June 30, 2021. We believe that
conditions in the SMT and semiconductor capital equipment markets have been
favorable, and we believe market conditions will remain solid for the remainder
of 2022. However, an increase in the severity of the current Covid-19 pandemic,
an escalation in the Ukraine conflict or an economic recession or depression,
could cause a slow-down in demand for SMT and semiconductor capital equipment.
Over the long term, we believe anticipated sales growth of our products based
on 3D MRS technology and WaferSense sensors should increase revenues and net
income. We believe that we have the resources required to attain our growth
objectives, given our available cash and marketable securities balances totaling
$36.8 million at June 30, 2022.

Impact from Covid-19

Effect of Covid-19 Outbreak on Business Operations




The Covid-19 outbreak has not had a significant impact on our business to date.
Our revenues increased by 21% to $51.8 million in the first six months of 2022,
from $42.9 million in the six months of 2021. The potential impact of Covid-19
on our business, results of operations, liquidity and prospects in the future is
not fully known at this time. The following factors related to the
Covid-19 outbreak may affect our business in the future:

· Sales of some products, mainly our SQ3000 Multi-Function systems and MX

memory module inspection products, require customer acceptance due to

performance or other criteria that is considered more than a formality.

Global travel restrictions and quarantine measures could hinder our ability

to obtain customer acceptances in a timely manner in the future, and

therefore impact the timing of revenue recognition. In addition, government

mandated shelter-in-place orders or quarantine measures could cause delays in

our ability to deliver our products to customers, or cause customers to delay

purchases of our products, negatively impacting our revenue and

profitability.

· Certain operating expenses were reduced in 2021 due to the Covid-19

pandemic. Travel, trade show expenses and other costs were reduced due to

changes in employee travel patterns and trade show cancellations. Travel,

trade show expenses and other costs have started to increase in those parts

of the world where the Covid-19 pandemic is easing.

· The Covid-19 pandemic has caused disruptions in the global supply chain,


   including shortages of raw materials, parts and labor, and shipping and
   logistics issues, including delays in ocean freight and port congestion.
   Increases in the cost of components, labor and freight could negatively
   impact our profitability in the future if we are unable to recover these
   costs by charging more for the products we sell. The inability to obtain

adequate supply of components or labor could result in the inability to meet

customer demands and delivery of one or more of our products for a period of

several months or longer, negatively impacting our revenue and profitability.

Supply chain disruptions are expected to continue for the foreseeable future

and may increase if the pandemic worsens or continues for an extended period

of time.




Although we cannot estimate the continuing impact of the Covid-19 outbreak at
this time, it may have an adverse effect on our results of future operations,
financial position and liquidity. We believe that we have the resources required
to meet any unforeseen difficulties resulting from the Covid-19 pandemic.
We will continue to closely monitor the Covid-19 pandemic and its impact on our
business in the coming months.



Revenues


Our revenues increased by 9% to $27.6 million in the three months ended June 30,
2022, from $25.2 million in the three months ended June 30, 2021. Our revenues
increased by 21% to $51.8 million in the six months ended June 30, 2022, from
$42.9 million in the six months ended June 30, 2021. The following table sets
forth revenues by product line for the three and six months ended June 30, 2022
and 2021:


                                             Three Months Ended June 30,                        Six Months Ended June 30,
(In thousands)                           2022            2021          % Change            2022            2021         % Change
High Precision 3D and 2D Sensors   $        6,826     $  7,131               (4 )%    $      14,887     $ 13,488               10 %
Inspection and Metrology Systems           13,331       12,581                6  %           22,759       18,920               20 %
Semiconductor Sensors                       7,412        5,492               35  %           14,169       10,528               35 %
Total                              $       27,569     $ 25,204                9  %    $      51,815     $ 42,936               21 %



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Revenues from sales of high precision 3D and 2D sensors decreased by $305,000 or
4% to $6.8 million in the three months ended June 30, 2022, and increased by
$1.4 million or 10% to $14.9 million in the six months ended June 30, 2022 The
decrease in the three months ended June 30, 2022 reflects normal fluctuations in
demand from OEM customers for legacy 2D sensors. The increase in the six months
ended June 30, 2022 was due to higher sales of both 3D MRS sensors and legacy 2D
sensors resulting from favorable conditions in the global semiconductor and SMT
capital equipment markets. Sales of high precision 3D MRS sensors increased by
$459,000 or 11% to $4.8 million in the three months ended June 30, 2022,
and increased by $1.1 million or 13% to $9.7 million in the six months ended
June 30, 2022.

Sales of high precision 3D and 2D sensors are dependent on the success of our
OEM customers and system integrators selling products that incorporate our
sensors. We believe sales of our 3D MRS sensors, including our next generation
ultra-high resolution three micron pixel 3D NanoResolution MRS sensor, will
represent an increasing percentage of our total high precision 3D and 2D sensor
sales in the future. Sales of high precision 3D and 2D sensors, including 3D MRS
sensors, are prone to significant quarterly fluctuations due to variations in
market demand and customer inventory levels.

Revenues from sales of inspection and metrology systems increased by $750,000 or
6% to $13.3 million in the three months ended June 30, 2022, and increased by
$3.8 million or 20% to $22.8 million in the six months ended June 30, 2022. The
increases were due to record sales of SQ3000™ Multi-Function systems resulting
from favorable conditions in the global semiconductor and SMT capital equipment
markets, the competitive advantages offered by our 3D MRS sensor technology and
companies transitioning away from 2D to 3D AOI systems to meet the increasingly
demanding product inspection and metrology requirements in the SMT and
semiconductor markets. Sales of SQ3000™ Multi-Function systems increased by $2.0
million or 33% to $8.3 million in the three months ended June 30, 2022,
and increased by $3.9 million or 38% to $14.2 million in the six months ended
June 30, 2022. Sales of memory module inspection systems decreased by $663,000
or 28% to $1.7 million in the three months ended June 30, 2022, and increased by
$364,000 or 15% to $2.8 million in the six months ended June 30, 2022.  Sales of
memory module inspection systems are prone to significant fluctuations on a
quarterly basis.

The market transition away from 2D AOI systems is expected to result in an
industry-wide compound annual rate of growth in global sales of 3D AOI systems
of almost 20% through 2025. Given these market dynamics and because of the
competitive advantages of our 3D MRS sensor technology, we anticipate sales of
SQ3000 Multi-Function systems will represent an increasing percentage of our
total inspection and metrology system sales in the future.


We believe memory manufacturers have determined that post singulation automated
optical inspection of memory modules is an important step in their manufacturing
process to improve yields and product quality. Two of the world's three largest
memory manufacturers and their subcontractors have now purchased the MX3000
system. At June 30, 2022, our backlog of orders for memory module inspection
systems totaled $9.3 million, and we expect to recognize these orders as revenue
over the balance of 2022. Additional orders for memory module inspection are
expected in future periods, and we believe the potential market opportunity for
our MX3000 system and 3D MRS sensors for memory module inspection is
significant.


Revenues from sales of semiconductor sensors, principally our WaferSense line of
products, increased by $1.9 million or 35% to $7.4 million in the three months
ended June 30, 2022, and increased by $3.6 million or 35% to $14.2 million in
the six months ended June 30, 2022. The revenue increase was due to construction
of new semiconductor fabs, favorable market conditions for semiconductor capital
equipment spending, and growing acceptance of our WaferSense products as
important productivity enhancement tools by semiconductor manufacturers and
capital equipment suppliers. Over the long term, we anticipate that the benefits
from growing market awareness of our WaferSense products, improved account
penetration at major semiconductor manufacturers and capital equipment suppliers
and new product introductions will lead to additional WaferSense product sales.


Export revenues totaled $21.8 million or 79% of our revenues in the three months
ended June 30, 2022, compared to $21.2 million or 84% of our revenues in the
three months ended June 30, 2021. Export revenues totaled $42.3 million or 82%
of our revenues in the six months ended June 30, 2022, compared to $35.7 million
or 83% of our revenues in the six months ended June 30, 2021. Export revenues as
a percentage of total revenues decreased in the three and six months ended June
30, 2022 due to higher sales of SQ3000™ Multi-Function systems in the United
States.

Cost of Revenues and Gross Margin




Cost of revenues increased only slightly in the three months ended June 30,
2022, and increased by $3.4 million or 14% to $26.8 million in the six months
ended June 30, 2022. The increase in cost of revenues in the six months ended
June 30, 2022 was mainly due to higher revenues, which increased on a
year-over-year basis by 21%. Total gross margin as a percentage of revenues
was 49% in the three months ended June 30, 2022, compared to 44% in the three
months ended June 30, 2021. Total gross margin as a percentage of revenues was
48% in the six months ended June 30, 2022, compared to 45% in the six months
ended June 30, 2021. Higher margin WaferSense sensors represented a larger
percentage of our total revenues in the three and six months ended June 30, 2022
when compared to the three and six months ended June 30, 2021.

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Our markets are highly price competitive, particularly in the electronics
assembly and SMT markets. As a result, we have experienced continual pressure on
our gross margins. We compensate for the pressure to reduce the price of our
products by introducing new products with more features and improved performance
and through manufacturing cost reduction programs. Sales of many products that
we have recently introduced or are about to introduce, including our
SQ3000+ Multi-Function system, WX3000 system for semiconductor wafer and
advanced packaging inspection and metrology, next generation 3D MRS sensors and
semiconductor sensors (consisting primarily of our WaferSense line of products)
have, or are expected to have, more favorable gross margins than many of our
existing products. Our next generation 3D MRS sensor and system products are
being designed for more complex and demanding inspection and metrology
applications in the SMT and semiconductor markets. Sales prices and gross profit
margins for these applications tend to be higher than margins for products sold
in the general purpose SMT market. However, the gross margin percentage for
our 3D MX3000 system for inspection of memory modules is lower than our current
total gross margin percentage due to the significant costs for material handling
and automation required for this product.  Our total gross margin percentage
would most likely be negatively impacted in the future if sales of our 3D MX3000
become a larger share of our total revenue mix.

The Covid-19 pandemic has caused disruptions in the global supply chain, including shortages of raw materials, parts and labor, and shipping and logistics issues, including delays in ocean freight and port congestion. Increases in the cost of components, labor and freight could negatively impact our gross margins in the future if we are unable to recover these costs by charging more for the products we sell.

Operating Expenses




R&D expenses were $3.1 million or 11% of revenues in the three months ended June
30, 2022, compared to $2.8 million or 11% of revenues in the three months ended
June 30, 2021. R&D expenses were $6.0 million or 12% of revenues in the six
months ended June 30, 2022, compared to $5.5 million or 13% of revenues in the
six months ended June 30, 2021. The increase in R&D expenses in the three and
six months ended June 30, 2022 was mainly due to higher compensation costs for
new and existing R&D employees, and consulting services for ongoing R&D
projects. Current R&D expenditures are primarily focused on development of a new
2D sensor, 3D MRS sensors and systems and WaferSense sensors, including
enhancements to existing products and development of next generation products.


Selling, general and administrative ("S,G&A") expenses were $5.4 million or 19%
of revenues in the three months ended June 30, 2022, compared to $4.7 million
or 19% of revenues in the three months ended June 30, 2021. Selling, general and
administrative expenses were $10.1 million or 19% of revenues in the six months
ended June 30, 2022, compared to $8.6 million or 20% of revenues in the six
months ended June 30, 2021. The increase in S,G&A expenses in the three and six
months ended June 30, 2022 was mainly due to higher compensation costs for new
and existing S,G&A employees, higher third party channel commissions resulting
from the 21% year-over-year increase in our revenues, and higher spending for
trade shows.


Interest Income and Other



Interest income and other includes interest earned on investments and gains and
losses associated with foreign currency transactions, primarily intercompany
financing transactions associated with our international subsidiaries. We
recognized gains from foreign currency transactions of $59,000 in the three
months ended June 30, 2022, compared to losses from foreign currency
transactions of $1,000 in the three months ended June 30, 2021. We recognized
gains from foreign currency transactions of $113,000 in the six months ended
June 30, 2022, compared to losses from foreign currency transactions of
$53,000 in the six months ended June 30, 2021.


Income Taxes



We recorded income tax expense of $632,000 in the three months ended June 30,
2022, compared to income tax expense of $590,000 in the three months ended June
30, 2021. We recorded income tax expense of $1.1 million in the six months ended
June 30, 2022, compared to income tax expense of $901,000 in the six months
ended June 30, 2021. Income tax expense in the six months ended June 30, 2022
reflected an effective tax rate of 12%, compared to an effective tax rate of 17%
in the six months ended June 30, 2021. The reduction in the effective income tax
rate in both the three and six months ended June 30, 2022, when compared to the
three and six months ended June 30, 2021, was mainly due to enhanced benefits
from Foreign Derived Intangible Income (FDII) and Global Intangible Low-Taxed
Income (GILTI), resulting from a change in U.S. income tax law requiring
capitalization and subsequent amortization of U.S. based R&D expenditures over
five years and foreign based R&D expenditures over 15 years. This change
increased the income which is eligible for the FDII and GILTI benefits. The
change in the treatment of R&D expenditures for income tax purposes is expected
to have a favorable impact on our effective tax rate in 2022, but will most
likely increase the amount of cash we expend for income taxes in the short term,
particularly in 2023 and later years. On a recurring basis, our effective income
tax rate is favorably impacted by the U.S. federal R&D tax credit, foreign tax
credit, FDII and GILTI.


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Liquidity and Capital Resources




Our cash and cash equivalents decreased by $4.8 million in the six months ended
June 30, 2022. Cash used in operating activities totaled $110,000. Investing
activities had purchases of marketable securities totaling $9.1 million and
purchases of fixed assets and capitalized patent costs totaling $980,000, which
were partially offset by proceeds of $5.1 million from maturities of marketable
securities. Financing activities had proceeds of $238,000 from stock option
exercises. Our cash and cash equivalents fluctuate in part because of sales and
maturities of marketable securities and investment of cash balances in
marketable securities, and from other sources of cash. Accordingly, we believe
the combined balances of cash and marketable securities provide a more reliable
indication of our available liquidity than cash balances alone. Combined
balances of cash and marketable securities decreased by approximately $1.5
million to $36.8 million as of June 30, 2022, from $38.3 million as of December
31, 2021.


Operating activities used $110,000 of cash in the six months ended June 30,
2022. The amount of cash provided by operations was favorably impacted by our
net income of $8.0 million. Net income was affected favorably by non-cash items
totaling $2.4 million for depreciation and amortization, non-cash operating
lease expense, provision for doubtful accounts, deferred taxes, non-cash gains
from foreign currency transactions, share-based compensation costs and an
unrealized loss on our available-for-sale equity security. Changes in operating
assets and liabilities providing cash included an increase in accounts payable
of $2.7 million and an increase in advance customer payments of $79,000. Changes
in operating assets and liabilities using cash included an increase in accounts
receivable of $8.4 million, an increase in inventories of $2.7 million, an
increase in prepaid expenses and other assets of $1.2 million, a decrease in
accrued expenses of $597,000 and a decrease in operating lease liabilities of
$429,000. Increases in accounts payable and inventories at June 30, 2022 were
due to planned purchases of raw materials to meet anticipated customer demand
and new product introductions. Advance customer payments were up due to an
increase in deposits for equipment prior to transfer of control. The increase in
accounts receivable was mainly due to higher sales in the second quarter
of 2022 when compared to the fourth quarter of 2021. The increase in prepaid
expenses and other assets was due to higher balances of refundable goods and
services tax and deposits paid for inventory. The decrease in accrued expenses
was mainly due to payment of 2021 bonus accruals in the first quarter of 2022.
The decrease in operating lease liabilities was due to monthly rental payments
for facility leases.


Investing activities used $5.0 million of cash in the six months ended June 30,
2022. Changes in the level of investment in marketable securities, resulting
from purchases and maturities of those securities, used $4.0 million of cash in
the six months ended June 30, 2022. We used $980,000 of cash in the six months
ended June 30, 2022 for the purchase of fixed assets and capitalized patent
costs.

Financing activities provided $238,000 of cash in the six months ended June 30, 2022 from the exercise of employee stock options.



At June 30, 2022, we did not have any relationships with unconsolidated entities
or financial partnerships, such as entities often referred to as structured
finance or special purpose entities. These entities are established by some
companies for the purpose of establishing off-balance sheet arrangements or for
other contractually narrow or limited purposes.

We believe that on-hand cash, cash equivalents and marketable securities, coupled with anticipated future cash flow from operations, will be adequate to fund our cash flow needs for the foreseeable future.

Critical Accounting Policies and Estimates





Our discussion and analysis of financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with generally accepted accounting principles for interim financial
statements. The preparation of these consolidated financial statements requires
us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate these estimates, including
estimates related to revenue recognition, bad debts, warranty obligations,
inventory valuation, intangible assets, and income taxes. We base these
estimates on historical experience and on various other assumptions that we
believe are 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. Our actual results may differ
from these estimates under different assumptions or conditions. See our Annual
Report on Form 10-K for the year December 31, 2021 for additional discussion
regarding critical accounting policies and estimates, and the judgements we
believe have the most effect on our reported financial position and results of
operations.


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