PRO-DEX, INC. The following discussion and analysis should be read in conjunction with our unaudited interim condensed financial statements and the related notes and other financial information appearing elsewhere in this report.
COMPANY OVERVIEW
The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of the results of operations and financial condition ofPro-Dex, Inc. ("Company ," "Pro-Dex ," "we," "our," or "us") for the three-month and nine-month periods endedMarch 31, 2023 and 2022. This discussion should be read in conjunction with the condensed financial statements and the notes thereto included elsewhere in this report. This report contains certain forward-looking statements and information. The cautionary statements included herein should be read as being applicable to all related forward-looking statements wherever they may appear. Our actual future results could differ materially from those discussed herein. Except for the historical information contained herein, the matters discussed in this report, including, but not limited to, discussionsof our product development plans, business strategies, strategic opportunities and market factors influencing our results, including uncertainties related to the COVID-19 pandemic, are forward-lookingstatements that involve certain risks and uncertainties. Actual results may differ from those anticipated by us as a result of various factors, both foreseen and unforeseen, including, but not limited to, our ability to continue to develop new products and increase sales in markets characterizedby rapid technological evolution, the impact of the COVID-19 pandemic on our suppliers, customers, and us, consolidation within our target marketplace and among our competitors, competition from larger, better capitalized competitors, and our ability to realize returns on opportunities. Many other economic, competitive, governmental,and technological factors could impact our ability to achieve our goals. You are urged to review the risks, uncertainties, and other cautionary language described in this report, as well as in our other public disclosures and reports filed with theSecurities and Exchange Commission ("SEC") from time to time, including, but not limited to, the risks, uncertainties, and other cautionary language discussed in our Annual Report on Form 10-K for our fiscal year endedJune 30, 2022 . We specialize in the design, development, and manufacture of autoclavable, battery-powered and electric, multi-function surgical drivers and shavers used primarily in the orthopedic, thoracic, and maxocranial facial ("CMF") markets. We have patented adaptive torque-limiting software and proprietary sealing solutions which appeal to our customers, primarily medical device distributors. We also manufacture and sell rotary air motors to a wide range of industries. Our principal headquarters are located at2361 McGaw Avenue ,Irvine, California 92614 and our phone number is (949) 769-3200. Our Internet address is www.pro-dex.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports and otherSEC filings are available free of charge through our website as soon as reasonably practicable after such reports are electronically filed with, or furnished to, theSEC . In addition, our Code of Ethics and other corporate governance documents may be found on our website at the Internet address set forth above. Our filings with theSEC may also be read and copied at theSEC's Public Reference Room at100 F Street, N.E. ,Washington, D.C. 20549. You may obtain information on the operation of thePublic Reference Room by calling theSEC at 1-800-SEC -0330. TheSEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with theSEC at www.sec.govand company specific information at www.sec.gov/edgar/searchedgar/companysearch.html.
Basis of Presentation
The condensed consolidated results of operations presented in this report are not audited and those results are not necessarily indicative of the results to be expected for the entirety of the fiscal year endingJune 30, 2023 . Our fiscal year ends onJune 30 and our fiscal quarters end onSeptember 30 ,December 31 , andMarch 31 . Unless otherwise stated, all dates refer to our fiscal year and those fiscal quarters. 17
Critical Accounting Estimates and Judgments
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted inthe United States . The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimate that are reasonably likely to occur could materially change the financial statements. Management believes that there have been no significant changes during the three and nine months endedMarch 31, 2023 to the items that we disclosed as our critical accounting policies in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year endedJune 30, 2022 .
Business Strategy and Future Plans
Our business today is almost entirely driven by sales of our medical devices. Many of our significant customers place purchase orders for specific products that were developed under various development and/or supply agreements. Our customers may request that we design and manufacture a custom surgical device or they may hire us as a contract manufacturer to manufacture a product of their own design. In either case, we have extensive experience with autoclavable, battery-powered and electric, multi-function surgical drivers and shavers. We continue to focus a significant percentage of our time and resources on providing outstanding products and service to our valued principal customers. During the first quarter of fiscal 2021, our largest customer executed an amendment to our existing supply agreement such that we shall continue to supply their surgical handpieces to them through calendar 2025. Simultaneously, we are working to build top-line sales through active proposals of new medical device products with new and existing customers. Our patented adaptive torque-limiting software has been very well received in the CMF and thoracic markets. Additionally, we have other significant engineering projects under way described more fully below under "Results of Operations." InNovember 2020 , we purchased an approximate 25,000 square foot industrial building inTustin, California (the "Franklin Property"). This building is located approximately four miles from ourIrvine, California headquarters and was acquired to provide us additional capacity for our expected continued future growth, including anticipated expanded capacity for the manufacture of batteries and new products. We substantially completed the build-out of the property in the first quarter of the prior fiscal year. Currently, we are actively engaged in various verification and validation activities and we expect we will begin operations in the new facility during the fourth quarter of this fiscal year. In summary, our current objectives are focused primarily on maintaining our relationships with our current medical device customers, expanding our manufacturing capacity with the addition of the Franklin Property, investing in research and development activities to designPro-Dex branded drivers to leverage our torque-limiting software, and promoting active product development proposals to new and existing customers for orthopedic shavers, screw drivers for a multitude of surgical applications, and other medical devices, while monitoring closely the progress of all these individual endeavors. Our investments in research and development have historically increased disproportionately to our growth in revenue and we anticipate this may continue in future periods. These expenditures are being made in an effort to release new products and garner new customer relationships. This fiscal year, however, the majority of our engineering efforts relate to customer funded non-recurring engineering ("NRE") projects, which costs are reclassified to cost of sales. While we expect revenue growth in the future, it may not be a consistent trajectory but rather periods of incremental growth that current expenditures are helping to create. However, there can be no assurance that we will be successful in any of these objectives. 18 COVID-19 Pandemic We have adjusted certain policies and procedures based on applicable national, state, and local emergency orders and safety guidance that may be issued from time to time, in order to effectively manage our business during the pandemic and to keep our employees safe. These measures have changed over time and continue to change as our specific circumstances change. While we have yet to see any significant decline in our customer orders, we have received and accepted some customer requests to delay the shipment of their existing orders. We are focused on the health and safety of all those we serve - our customers, our communities, our employees, and our suppliers. We are supporting our customers according to their priorities and working with them to the degree that we can offer relief in the form of delayed shipments. We are focused on continuity of supply by working with our suppliers, some of whom have delivered our orders late and are quoting longer lead times. During fiscal 2022, we began to see some challenges in our supply chain in the form of delayed shipments, longer lead times, higher prices, and surcharges, much of which our suppliers indicate have been caused by the COVID-19 pandemic. We have largely been able to mitigate our biggest supply chain concerns by sourcing replacement chips through alternative suppliers, albeit at much higher prices, for many of our printed circuit board assemblies. In so doing, our cost of sales increased during the second half of fiscal 2022 and thus far in fiscal 2023. We continue to implement plans and processes to mitigate these challenges that many manufacturers similarly face. Our long-term prospects remain positive, and we believe these challenges will negatively impact us only in the short-term.
Description of Business Operations
Revenue
The majority of our revenue is derived from designing, developing and manufacturing surgical devices for the medical device industry. The proportion of total sales by type is as follows (in thousands, except percentages):
Three Months Ended Nine Months Ended
March 31, March 31,
2023 2022 2023 2022
% of Revenue % of Revenue % of Revenue % of Revenue
Net Sales :
Medical device products 6,990 54 % 6,527 70 % 23,631 67 % 23,199 79 %
Industrial and scientific 260 2 % 321 4 % 691 2 % 775 3 %
Dental and component 43 - 203 2 % 182 - 348 1 %
NRE & Proto-type 970 7 % 549 6 % 2,361 7 % 859 3 %
Repairs and other 4,816 37 % 1,665 18 % 8,583 24 % 4,245 14 %
13,079 100 % 9,265 100 % 35,448 100 % 29,426 100 %
Certain of our medical device products utilize proprietary designs developed by
us under exclusive development and supply agreements. All of our medical device
products utilize proprietary manufacturing methods and know-how, and are
manufactured in our Irvine, California facility, as are our industrial products.
Details of our medical device sales by type is as follows (in thousands, except
percentages):
Three Months Ended Nine Months Ended
March 31, March 31,
2023 2022 2023 2022
% of Total % of Total % of Total % of TotalMedical device sales:
Orthopedic 3,866 55 % 3,233 50 % 15,271 65 % 14,270 62 % CMF 2,886 41 % 2,093 32 % 7,208 30 % 7,084 30 % Thoracic 238 4 % 1,201 18 % 1,152 5 % 1,845 8 % Total 6,990 100 % 6,527 100 % 23,631 100 % 23,199 100 % Sales of our medical device products increased$463,000 , or 7%, and$432,000 , or 2%, respectively, for the three and nine months endedMarch 31, 2023 , compared to the corresponding periods of the prior fiscal year. Our medical device revenue to our largest customer, included in orthopedic sales above, increased$633,000 and$1.0 million , respectively, for the three and nine months endedMarch 31, 2023 compared to the corresponding periods of the prior fiscal year. Additionally, recurring revenue from distributors of CMF drivers increased$793,000 and$124,000 , respectively, for the three and nine months endedMarch 31, 2023 , compared to the corresponding periods of the prior fiscal year in part due to the launch of a new driver to our existing largest customer during the third quarter of the prior fiscal year. Our thoracic sales revenue decreased$963,000 and$693,000 , for the three and nine months endedMarch 31, 2023 , respectively, compared to the corresponding periods of the prior fiscal year, due primarily as a result of our customer for our thoracic driver filling the near-term requirements of its distribution network. 19 Sales of our compact pneumatic air motors, reported as industrial and scientific sales above, decreased$61,000 , or 19%, and$84,000 , or 11%, respectively, for the three and nine months endedMarch 31, 2023 , compared to the corresponding periods of the prior fiscal year. These are legacy products with no substantive marketing efforts. Our NRE and proto-type revenue increased$421,000 , or 77%, and$1.5 million , or 175%, for the three and nine months endedMarch 31, 2023 , compared to the corresponding periods of the prior fiscal year, due to an increase in billable contracts for various NRE projects undertaken for our customers. Sales of our dental products and components decreased$160,000 , or 79%, and$166,000 , or 48%, respectively, for the three and nine months endedMarch 31, 2023 , compared to the corresponding periods of the prior fiscal year. In the prior fiscal year we sold component inventory to our largest customer used in their legacy design which did not recur in the current fiscal year. We expect future declines in this area as we are no longer manufacturing dental products, but rather are simply selling remaining component inventory. Repair revenue increased$3.2 million or 189%, and$4.3 million , or 102%, for the three and nine months endedMarch 31, 2023 , respectively, compared to the corresponding periods of the prior fiscal year due to increased repairs of the orthopedic handpiece we sell to our largest customer. This increase was expected as we have been upgrading handpieces to the next generation, which design was released to manufacture in the third quarter of fiscal 2022. Additionally, we completed negotiations on repair pricing and terms with this customer during the three months endedMarch 31, 2023 , and received an additional$520,000 in compensation during the third quarter of this fiscal year, for handpieces upgraded betweenJuly 2022 andDecember 2022 and reached an agreement for future consideration which we expect to recognize in a future fiscal year. We expect to continue to see increases in repair revenue, albeit at reduced margins, for the remainder of this fiscal year because this customer has requested that we perform an enhanced repair on each handpiece, which includes the advance replacement of certain components. AtMarch 31, 2023 , we had a backlog of approximately$18.8 million , of which$8.5 million is scheduled to be delivered in the fourth quarter of fiscal 2023 and the balance is scheduled to be delivered next fiscal year and beyond. Our backlog represents firm purchase orders received and acknowledged from our customers and does not include all revenue expected to be generated from existing customer contracts. We may experience variability in our new order bookings due to various reasons, including, but not limited to, the timing of major new product launches and customer planned inventory builds. However, we do not typically experience seasonal fluctuations in our shipments and revenues. 20 Cost of Sales and Gross Margin (in thousands except percentages) Three Months Ended Nine Months Ended March 31, March 31, 2023 2022 2023 2022 % of Total % of Total % of Total % of Total Cost of sales: Product cost 8,510 92 % 5,465 85 % 24,066 92 % 18,436 94 %
Under(over)-absorption
of manufacturing costs 729 8 % 528 8
% 1,705 7 % 631 3 %
Inventory and
warranty charges 29 - 414 7 % 287 1 % 670 3 %
Total cost of sales 9,268 100 % 6,407 100 % 26,058 100 % 19,737 100 %
Three Months Ended Nine Months Ended Year over Year
March 31, March 31, ppt Change
Nine
2023 2022 2023 2022 Three Months Months
Gross margin 29 % 31 % 26 % 33 % (2 ) (7 )
Cost of sales for the three months ended March 31, 2023 , increased $2.9 million ,
or 45%, compared to the corresponding period of the prior fiscal year. The
increase in total costs of sales was caused by the 41% increase in revenue for
the same period. Under-absorption of manufacturing costs increased by $201,000
for the three months ended March 31, 2023 , compared to the corresponding period
of the prior fiscal year due in part to our inability to absorb our fixed costs,
which were not reduced in the third quarter of the current fiscal year in
anticipation of future revenue growth. Costs relating to inventory and warranty
charges decreased $385,000 for the third quarter ended March 31, 2023 compared
to the third quarter of the prior fiscal year, largely due to a reduction in
warranty expenses.
Gross profit increased by approximately $953,000 , or 33%, for the three months
ended March 31, 2023 , compared to the corresponding period of the prior fiscal
year, consistent with the overall increase in revenue. Gross margin as a
percentage of sales decreased by approximately 2 percentage points compared to
the corresponding period of the prior fiscal year due primarily to increased
under-absorption of manufacturing costs as a result of additional indirect costs
in our manufacturing, assembly, and quality departments, especially related to
ongoing verification and validation activities for the Franklin Property.
Cost of sales for the nine months ended March 31, 2023 increased by $6.3
million , or 32%, compared to the corresponding period of the prior fiscal year.
Although some of the increase in cost of sales is consistent with the 21%
increase in revenue for the same period, the reasons for which are discussed
above, the enhanced repair program implemented for our largest customer includes
the advance replacement of certain components which has contributed to a $1.4
million increase in cost of sales. Additionally, total cost of sales reflects a
$1.1 million increase in under-absorbed manufacturing costs due to actual
production hours being less than planned as well as the additional indirect
costs in our manufacturing, assembly, and quality operations described above.
Inventory and warranty charges decreased by approximately $383,000 , or 57%, for
the nine months ended March 31, 2023 , compared to the corresponding period of
the prior fiscal year, due to reduced component inventory write-downs as a
result of sourcing high priced components for our printed circuit board
assemblies in the prior fiscal year.
Gross profit decreased by $299,000 , or 3%, for the nine months ended March 31,
2023 , compared to the corresponding period of the prior fiscal year, primarily
as a result of the increase in cost of sales described above. Gross margin for
the nine months ended March 31, 2023 , decreased by 7 percentage points compared
to the corresponding period of the prior fiscal year.
21
Operating Expenses
Operating Costs and Expenses
(in thousands except percentages)
Three Months Ended Nine Months Ended
March 31, March 31, Year over Year % Change
2023 2022 2023 2022 Three Months Nine Months
% of Net Sales % of Net Sales % of Net Sales % of Net Sales
Operating expenses:
Selling expenses 24 - 20 - 146 - 79 - 20 % 85 %
General and administrative expenses 1,009 8 % 1,145 13 % 2,983 9 % 3,402 12 % (12 %) (12 %)
Research and development costs 713 5 % 658 7 % 2,109 6 % 2,254 8 % 8 % (6 %)
1,746 13 % 1,823 20 % 5,238 15 % 5,735 20 % (4 %) (9 %)
Selling expenses consist of salaries and other personnel-related expenses for
our business development department, as well as advertising and marketing
expenses, and travel and related costs incurred in generating and maintaining
our customer relationships. Selling expenses for the three and nine months ended
March 31, 2023 , increased $4,000 , or 20%, and $67,000 , or 85%, respectively,
compared to the corresponding periods of fiscal 2022. The increase is primarily
due to increased sales commissions.
General and administrative expenses ("G&A") consist of salaries and other
personnel-related expenses of our accounting, finance and human resource
personnel, as well as costs for outsourced information technology services,
professional fees, directors' fees, and other costs and expenses attributable to
being a public company. G&A decreased $136,000 and $419,000 , respectively,
during the three and nine months ended March 31, 2023 , when compared to the
corresponding periods of the prior fiscal year. The decreases relate primarily
to reduced legal and settlement expenses related to employment matters and
reduced non-cash compensation expense related to stock compensation, offset by
increased legal fees related to intellectual property matters.
Research and development costs generally consist of salaries, employer-paid
benefits, and other personnel- related costs of our engineering and support
personnel, as well as allocated facility and information technology costs,
professional and consulting fees, patent-related fees, lab costs, materials, and
travel and related costs incurred in the development and support of our
products. Research and development costs for the three months ended March 31,
2023 , increased $55,000 , or 8%, compared to the corresponding periods of the
prior fiscal year. Research and development costs for the nine months ended
March 31, 2023 , decreased $145,000 , or 6%, compared to the corresponding periods
of the prior fiscal year. This relates to increased personnel and related
expense offset by decreased spending on internal engineering projects and a
shift to increased spending on billable development projects. When our engineers
are engaged in a billable project as opposed to an internal project, costs get
shifted to cost of sales instead of research and development.
22
Although the majority of our research and development costs relate to sustaining
activities related to products we currently manufacture and sell, we have
created a product roadmap to develop future products. Many of our product
development efforts are undertaken only upon completion of an analysis of the
size of the market, our ability to differentiate our product from our
competitors', as well as an analysis of our specific sales prospects with new
and/or existing customers. The research and development costs represent between
36% and 41% of total operating expenses for all periods presented and are
expected to increase in the future as we continue to invest in product
development efforts. The amount spent on internal projects under development is
summarized below (in thousands):
Market
Three and Nine Months Ended March 31, Three
and Nine Months Ended
2023 2022 (1) Revenue (2)
Total Research &
Development costs: $ 713 $ 2,109 $ 658 $ 2,254
Products in
development:
ENT Shaver 6 50 15 278 Q4 2023 $ 1,000
Sustaining & Other 707 2,059 643 1,976
Total. $ 713 $ 2,109 $ 658 $ 2,254 (1) Represents the calendar quarter of expected market launch.
(2) The products in development include risks that they could be abandoned in the
future prior to completion, they could fail to become commercialized, or the
actual annual revenue realized may be less than the amount estimated.
As we introduce new products into the market, we expect to see an increase in sustaining and other engineering expenses. Typical examples of sustaining engineering activities include, but are not limited to, end-of- life component replacement, especially in electronic components found in our printed circuit board assemblies, analysis of customer complaint data to improve process and design, replacement and enhancement of tooling and fixtures used in our machine shop, assembly operations, and inspection areas to improve efficiency and through-put. Additionally, these costs include development projects that may be in their infancy and may or may not result in a full-fledged product development effort. Interest & Other Income Interest income for the three and nine months endedMarch 31, 2023 and 2022, includes interest and dividends from our money market accounts and investment portfolio. Interest Expense Interest expense consists primarily of interest expense related to the notes payable described more fully in Note 10 to the condensed consolidated financial statements contained elsewhere in this report.
Unrealized gain (loss) on marketable equity investments
The unrealized gain (loss) on marketable equity investments relates to our investment portfolio more fully described in Note 4 to the condensed consolidated financial statements contained elsewhere in this report.
Gain on Sale of Investments
During the first quarter endedSeptember 30, 2022 , we sold some of the stocks in our portfolio of equity investments receiving proceeds of$88,000 and recording a gain on the sale in the amount of$7,000 . 23 Income Tax Expense The effective tax rate for the three and nine months endedMarch 31, 2023 and 2022, is slightly less than our combined expected federal and applicable state corporate income tax rates due to federal and state research credits. Additionally, the current year effective tax rate for the nine months endedMarch 31, 2023 is less than our combined expected federal and applicable state corporate income tax rates due to a tax benefit recognized as a result of common stock awarded to employees under previously granted performance awards in the first quarter of fiscal 2023 as described more fully in Note 8 to the condensed consolidated financial statements contained elsewhere in this report, as well as unrealized gains on our marketable equity investments.
Liquidity and Capital Resources
Cash and cash equivalents atMarch 31, 2023 , increased$1.2 million to$2.1 million as compared to$849,000 atJune 30, 2022 . The following table includes a summary of our condensed statements of cash flows contained elsewhere in this report. As of and For the Nine Months Ended March 31, 2023 2022 (in thousands) Cash provided by (used in): Operating activities $ 4,835 $ 4,432 Investing activities $ (733 ) $ (1,636 ) Financing activities $ (2,863 ) $ (1,756 )Cash and Working Capital : Cash and cash equivalents $ 2,088 $ 4,761 Working capital $ 21,001 $ 20,376 Operating Activities Net cash provided by operating activities was$4.8 million for the nine months endedMarch 31, 2023 , primarily due to net income of$3.3 million , non-cash depreciation and amortization of$594,000 , share-based compensation of$584,000 , and collections of accounts receivable in the amount of$4.8 million offset by a decrease in accounts payable and accrued expenses of$1.0 million , a decrease in deferred revenue of$956,000 , and an increase in inventory in the amount of$2.5 million . Net cash provided by operating activities was$4.4 million for the nine months endedMarch 31, 2022 , primarily due to net income of$2.4 million , non-cash depreciation and amortization of$546,000 , share-based compensation of$932,000 and unrealized losses on marketable securities in the amount of$427,000 , as well as an increase in accounts payable and accrued expenses of$673,000 , an increase in deferred revenue of$746,000 , and a decrease in accounts receivable in the amount of$2.3 million . Offsetting these sources of cash, our inventory increased by$3.4 million primarily due to replenishment of sub-assemblies
and long-lead time parts. Investing Activities Net cash used in investing activities for the nine months endedMarch 31, 2023 , was$733,000 and related primarily to the purchases of equipment and improvements primarily for the Franklin Property totaling$822,000 . Offsetting this use of cash, we sold some of our marketable securities during the nine months endedMarch 31, 2023 for$89,000 . Net cash used in investing activities for the nine months endedMarch 31, 2022 , was$1.6 million and related to purchases of equipment and improvements primarily for the Franklin Property in the amount of$1.3 million and investments in marketable equity securities of publicly traded companies in
the amount of$334,000 . 24 Financing Activities Net cash used in financing activities for the nine months endedMarch 31, 2023 , totaled$2.9 million and related primarily to the$1.5 million repurchase of 86,422 shares of our common stock pursuant to our share repurchase program,$4.8 million of payments toMinnesota Bank and Trust ("MBT") as well as payment of$223,000 of employee payroll taxes related to the award of 37,500 shares of common stock to employees under previously granted performance awards. Offsetting these uses of cash we also borrowed$3.6 million from MBT under our amended revolving loan, and collected$78,000 and$11,000 , respectively, related to employee contributions to the ESPP plan and exercises of stock options. Net cash used in financing activities for the nine months endedMarch 31, 2022 , totaled$1.8 million and related primarily to the$1.3 million repurchase of 52,718 shares of our common stock pursuant to our share repurchase program as well as$561,000 of principal payments on our loans from MBT more fully described in Note 10 to the condensed consolidated financial statements contained elsewhere in this report.
Financing Facilities & Liquidity Requirements for the next twelve months
As ofMarch 31, 2023 , our working capital was$21.0 million . We currently believe that our existing cash and cash equivalent balances together with our accounts receivable balances will provide us sufficient funds to satisfy our cash requirements as our business is currently conducted for at least the next 12 months. In addition to our cash and cash equivalent balances, we expect to derive a portion of our liquidity from our cash flows from operations. We may also liquidate some or all of our investment portfolio or borrow further against our$7.0 million Amended Revolving Loan with MBT (see Note 10 to condensed consolidated financial statements contained elsewhere in this report), under which we had availability of$5.2 million as ofMarch 31, 2023 . We are focused on preserving our cash balances by monitoring expenses, identifying cost savings, and investing only in those development programs and products that we believe will most likely contribute to our profitability. As we execute on our current strategy, however, we may require debt and/or equity capital to fund our working capital needs and requirements for capital equipment to support our manufacturing and inspection processes. In particular, we have experienced negative operating cash flow in the past, especially as we procure long-lead time materials to satisfy our backlog, which can be subject to extensive variability. We believe that if we need to raise additional capital to fund our operations beyond the cash available from the strategies mentioned above, we can do so by selling additional shares of our common stock under the ATM Agreement. (See Note 11 to condensed consolidated financial statements contained elsewhere in this report).
Investment Strategy
We invest surplus cash from time to time through our Investment Committee, which is comprised of one management director,Mr. Van Kirk , and two non-management directors,Mr. Cabillot andMr. Swenson , who chairs the committee. BothMr. Cabillot andMr. Swenson are active investors with extensive portfolio management expertise. We leverage the experience of these committee members to make investment decisions for the investment of our surplus operating capital or borrowed funds. Additionally, many of our securities holdings include stocks of public companies that either Messrs. Swenson or Cabillot or both may own from time to time either individually or through the investment funds that they manage, or other companies whose boards they sit on. The Investment Committee approved each of the investments comprising the$2.7 million of marketable public equity securities held atMarch 31, 2023 .
© Edgar Online, source
