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, 2022 and 2021. 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, 2021 . 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. 17 Basis of Presentation The condensed 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, 2022 , or any other interim period during such fiscal year. 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.
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, 2022 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, 2021 .
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 this fiscal year. Currently, we are actively engaged in various verification and validation activities and we moved certain employees into the new building during the third 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. 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 COVID-19 pandemic, including:
· Non-essential employees that are able to work remotely are doing so;
· Increased frequency of disinfectant cleanings, especially for high-touch
surfaces;
· Curtailed business travel;
· Multiple, staggered work shifts have been implemented in order to achieve
effective social distancing;
· Provided training, education and appropriate personal protective equipment; and
· Company-wide COVID-19 testing on a periodic basis.
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 provide our largest customer with a device used primarily in elective surgeries and although this customer has not requested a reduction or delay to their planned shipments, if this pandemic continues to adversely impactthe United States and other markets where our products are sold, coupled with any recommended deferrals of elective procedures by governments and other authorities, we would expect to see a decline in demand from certain of our customers, including our principal customer. 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. While the COVID-19 pandemic has not materially adversely affected our financial results and business during calendar 2021, we began to see some challenges in our supply chain in the form of delayed shipments, longer lead times, and surcharges, much of which our suppliers indicate has been caused by the COVID-19 pandemic. As previously disclosed, during early calendar 2022, we saw these conditions persist and worsen such that we expected them to negatively impact our financial performance in the third quarter and possibly the fourth quarter of fiscal 2022, reflected as a reduction in net sales. While we did see a decline in our third quarter sales compared to sales during our fiscal first and second quarter, we were able to largely mitigate our biggest concerns by sourcing replacement chips through alternative suppliers, albeit at much higher prices, for many of our printed circuit board assemblies. 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,
2022 2021 2022 2021
% of Revenue % of Revenue % of Revenue % of RevenueNet Sales : Medical device products$ 6,527 70 %$ 10,645 91 %$ 23,199 79 %$ 23,757 83 % Industrial and scientific 321 4 % 208 2 % 775 3 % 593 2 % Dental and component 203 2 % 24 - 348 1 % 98 1 % NRE & Proto-type 549 6 % 55 - 859 3 % 185 - Repairs and other 1,665 18 % 807 7 % 4,245 14 % 3,961 14 %$ 9,265 100 %$ 11,739 100 %$ 29,426 100 %$ 28,594 100 % 19 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 ourIrvine, 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, 2022 2021 2022 2021 % of Total % of Total % of Total % of Total Medical device sales: Orthopedic$ 3,233 50 %$ 4,534 43 %$ 14,270 62 %$ 12,664 53 % CMF 2,093 32 % 2,066 19 % 7,084 30 % 4,661 20 % Thoracic 1,201 18 % 4,045 38 % 1,845 8 % 6,432 27 % Total$ 6,527 100 %$ 10,645 100 %$ 23,199 100 %$ 23,757 100 % Sales of our medical device products decreased$4.1 million , or 39%, and$558,000 , or 2%, respectively, for the three and nine months endedMarch 31, 2022 , respectively, compared to the corresponding periods of the prior fiscal year. Our medical device revenue to our largest customer, included in orthopedic sales above, decreased$1.5 million and increased$1.2 million , respectively, for the three and nine months endedMarch 31, 2022 compared to the corresponding periods of the prior fiscal year. In the third quarter of this fiscal year there was a delay in shipping due to the release of our largest customer's next generation device, which disruption we do not expect to recur. Additionally, recurring revenue from distributors of CMF drivers increased$27,000 and$2.4 million , respectively, for the three and nine months endedMarch 31, 2022 , 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$2.8 million and$4.6 million , respectively, for the three and nine months endedMarch 31, 2022 , respectively, compared to the corresponding periods of the prior fiscal year, due primarily as a result of our customer filling the near-term requirements of its distribution network. Sales of our compact pneumatic air motors, reported as industrial and scientific sales above, increased$113,000 , or 54%, and$182,000 , or 31%, respectively, for the three and nine months endedMarch 31, 2022 , compared to the corresponding periods of the prior fiscal year. The revenue increase relates to a continued interest in these legacy products but is not due to any substantive marketing efforts. Sales of our dental products and components increased$179,000 , or 746%, and$250,000 , or 255%, respectively, for the three and nine months endedMarch 31, 2022 , compared to the corresponding periods of the prior fiscal year. The increase was primarily related to sales to our largest customer of component inventory used in their legacy design which we do not expect to recur. We expect future declines in this area as we are no longer manufacturing dental products, but rather are simply selling remaining component inventory. As previously discussed, inJanuary 2018 , we sent notification to our dental product customers that we were discontinuing the manufacture of these products. The cessation of our dental line of products did not have a material impact on our financial position or results of operations and reflected a conscious decision to increase capacity for our medical device products. Repair revenue increased$858,000 , or 106%, and$284,000 , or 7%, for the three and nine months endedMarch 31, 2022 , 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. AtMarch 31, 2022 , we had a backlog of approximately$21.2 million , of which$7.9 million is scheduled to be delivered in the fourth quarter of fiscal 2022 and the balance is scheduled to be delivered next fiscal year. Our backlog represents firm purchase orders received and acknowledged from our customers and does not include all revenue expected to be generated from existing customer contracts. We may experience variability in our new order bookings due to various reasons, including, but not limited to, the timing of major new product launches and customer planned inventory builds. However, we do not typically experience seasonal fluctuations in our shipments and revenues. 20 Cost of Sales and Gross Margin (in thousands except percentages) Three Months Ended Nine Months Ended March 31, March 31, 2022 2021 2022 2021 % of Total % of Total % of Total % of Total Cost of sales: Product cost$ 5,465 85 %$ 7,000 95 %$ 18,436 94 %$ 17,120 94 % Under(over)-absorption of manufacturing costs 528 8 % 118 2 % 631 3 % 470 3 % Inventory and warranty charges 414 7 % 236 3 % 670 3 % 548 3 % Total cost of sales$ 6,407 100 %$ 7,354 100 %$ 19,737 100 %$ 18,138 100 % Three Months Ended Nine Months Ended Year over Year March 31, March 31, ppt Change Three Nine 2022 2021 2022 2021 Months Months Gross margin 31 % 37 % 33 % 37 % (6 ) (4 ) Cost of sales for the three months endedMarch 31, 2022 , decreased$947,000 , or 13%, compared to the corresponding period of the prior fiscal year. The decrease in total costs of sales was caused by the 21% decrease in revenue for the same period. Under-absorption of manufacturing costs increased by$410,000 for the three months endedMarch 31, 2022 , compared to the corresponding period of the prior fiscal year due in part to our inability absorb our fixed costs, which were not reduced in the third quarter, in anticipation of future revenue growth. Costs relating to inventory and warranty charges increased$178,000 for the third quarter endedMarch 31, 2022 compared to the third quarter of the prior fiscal year, largely due to sourcing components for our printed circuit board assemblies at prices higher than usual. As previously disclosed, our supply chain has incurred many disruptions that suppliers indicate have been caused by the COVID-19 pandemic.
Gross profit decreased by approximately$1.5 million , or 35%, for the three months endedMarch 31, 2022 , compared to the corresponding period of the prior fiscal year, consistent with the overall decrease in revenue. Gross margin as a percentage of sales decreased by approximately 6 percentage points compared to the corresponding period of the prior fiscal year due primarily to reduced sales, increased under-absorption of manufacturing costs as a result of decreased sales and the increases in inventory and warranty charges, which relates mostly to component inventory write-downs to net realizable value as many of these component price increases cannot be passed on to our customers,many of whom have price protections in place under long-term contracts. Cost of sales for the nine months endedMarch 31, 2022 increased by$1.6 million , or 9%, compared to the corresponding period of the prior fiscal year, consistent with the increased revenue of 3% for the same period, the reasons for which are discussed above. Additionally, total cost of sales reflects a$161,000 increase in under-absorbed manufacturing costs due to actual production hours being less than planned. Inventory and warranty charges increased by approximately$122,000 , or 22%, for the nine months endedMarch 31, 2022 , compared to the corresponding period of the prior fiscal year, due to component inventory write-downs to net realizable value. Gross profit decreased by$767,000 , or 7%, for the nine months endedMarch 31, 2022 , compared to the corresponding period of the prior fiscal year, primarily as a result of the increase in cost of sales described above. Gross margin for the nine months endedMarch 31, 2022 , decreased by 4 percentage points compared to the corresponding period of the prior fiscal year. 21 Operating Expenses Operating Costs and Expenses (in thousands except % change) Three Months Ended Nine Months Ended March 31, March 31, Year over Year % Change 2022 2021 2022 2021 Three Months Nine Months % of Net Sales % of Net Sales % of Net Sales % of Net Sales Operating expenses: Selling expenses$ 20 -$ 136 1 %$ 79 -$ 415 2 % (85 %) (81 %) General and administrative expenses 1,145 12 % 1,280 11 % 3,402 12 % 2,922 10 % (11 %) 16 % Research and development costs 658 7 % 1,104 10 % 2,254 8 % 3,184 11 % (40 %) (29 %)$ 1,823 20 %$ 2,520 22 %$ 5,735 20 %$ 6,521 23 % (28 %) (12 %) 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 endedMarch 31, 2022 , decreased$116,000 , or 85%, and$336,000 , or 81%, respectively, compared to the corresponding periods of fiscal 2021. The decrease is primarily due to decreased personnel and related expenses due to combining our Director of Business Development position with our Director of Engineering position in the first quarter of fiscal 2022. 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$135,000 and increased$480,000 , respectively, during the three and nine months endedMarch 31, 2022 , when compared to the corresponding periods of the prior fiscal year. The decrease in general and administrative expenses for the three months endedMarch 31, 2022 , compared to the corresponding period of fiscal 2021 relates primarily to reduced non-cash compensation expense because 62,000 stock options granted inFebruary 2021 vested inJune 2021 and therefore compensation expense for those awards ceased in fiscal 2021. The increase in general and administrative expenses for the nine months endedMarch 31, 2022 , compared to the corresponding period of fiscal 2021 relate primarily to higher non-cash stock-based compensation expense related to the remaining awards granted in the prior and current fiscal year. 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 and nine months endedMarch 31, 2022 , decreased$446,000 and$930,000 , respectively, compared to the corresponding periods of the prior fiscal year. These decreases are primarily due to increased spending on billable development projects. When our engineers are engaged in a billable project as opposed to an internal project, costs get shifted to cost of sales instead of research and development. 22 Although the majority of our research and development costs relate to sustaining activities related to products we currently manufacture and sell, we have created a product roadmap to develop future products. Many of our product development efforts are undertaken only upon completion of an analysis of the size of the market, our ability to differentiate our product from our competitors', as well as an analysis of our specific sales prospects with new and/or existing customers. The research and development costs represent between 36% and 49% of total operating expenses for all periods presented and are expected to increase in the future as we continue to invest in the business. The amount spent on projects under development is summarized below (in thousands): Three and Nine Months Ended Three and Nine Months Ended Market Est Annual March 31, 2022 March 31, 2021 Launch (1) Revenue (2)Total Research & Development costs:$ 658 $ 2,254 $ 1,104 $ 3,184 Products in development: ENT Shaver 15 278 192 450 Q4 2022$ 1,000 Vital Ventilator 7 115 26 91 Q1 2023$ 1,500 CMF Driver - - 263 731 (3 )$ 1,000 Sustaining & Other 636 1,861 623 1,912 Total$ 658 $ 2,254 $ 1,104 $ 3,184
(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.
(3) The CMF Driver was completed in the third quarter of fiscal 2021 and began
shipping to our existing largest customer under a distribution agreement we
executed in the first quarter of fiscal 2021.
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, 2022 and 2021, 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 11 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 5 to the condensed consolidated financial statements contained elsewhere in this report.
23 Gain on Sale of Investments During the quarter endedMarch 31, 2021 , we sold several of the stocks in our portfolio of equity investments receiving proceeds of$2.9 million and recording a gain on the sale in the amount of$783,000 . During the quarter endedSeptember 30, 2020 , we liquidated two of the stocks in our portfolio of equity investments, receiving proceeds of$115,000 and recording a gain on the sale in the amount of$12,000 . Income Tax Expense
The effective tax rate for the three and nine months endedMarch 31, 2022 , is slightly less than our combined expected federal and applicable state corporate income tax rates due to federal and state research credits. The effective tax rate for the three and nine months endedMarch 31, 2021 , is less than our combined expected federal and applicable state corporate income tax rates due to federal and state research credits, as well as a tax benefit recognized as a result of common stock awarded to employees under previously granted performance awards in the first quarter of fiscal 2021 as described more fully in Note 9 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, 2022 , increased$1.0 million to$4.8 million as compared to$3.7 million atJune 30, 2021 . 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, 2022 2021 (in thousands) Cash provided by (used in): Operating activities $ 4,432 $ (2,803 ) Investing activities $ (1,636 ) $ (4,375 ) Financing activities $ (1,756 ) $ 4,631Cash and Working Capital : Cash and cash equivalents $ 4,761 $ 3,874 Working capital $ 20,376 $ 20,091 Operating Activities 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 and 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 , 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. Net cash used in operating activities was$2.8 million for the nine months endedMarch 31, 2021 , primarily due to net income of$5.0 million and non-cash depreciation and amortization of$502,000 and share-based compensation of$508,000 offset by an unrealized gain on marketable securities in the amount of$1.4 million and an increase in accounts receivable in the amount of$6.8 million due to our largest customer changing their payment terms from net 30 to net 90 in conjunction with a contract extension. Additionally, our net income included$795,000 of realized gains from the sales of stock in our marketable securities portfolio. 24 Investing Activities 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 . Net cash used in investing activities for the nine months endedMarch 31, 2021 , was$4.4 million and related primarily to the purchase of the Franklin Property acquired during the second quarter of fiscal 2021 for a purchase price of$6.5 million as well as expenditures related to machinery and equipment totaling$872,000 . Offsetting these uses of cash, we sold some of our marketable securities during the nine months endedMarch 31, 2021 for$3.0 million . Financing Activities 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 term loan fromMinnesota Bank and Trust ("MBT") more fully described in Note 11 to the condensed consolidated financial statements contained elsewhere in this report. Net cash provided by financing activities for the nine months endedMarch 31, 2021 , totaled$4.6 million and included$9.1 million in various loans from MBT more fully described in Note 11 to the condensed consolidated financial statements contained elsewhere in this report, offset by$4.0 million related to the repurchase of 161,291 shares of our common stock pursuant to our share repurchase program,$307,000 of principal payments on our loans with MBT, as well as payment of$259,000 of employee payroll taxes related to the award of 40,000 shares of common stock to employees under previously granted performance awards.
Financing Facilities & Liquidity Requirements for the next twelve months
As ofMarch 31, 2022 , our working capital was$20.4 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 against our$2.0 million Revolving Loan with MBT (see Note 11 to condensed consolidated financial statements contained elsewhere in this report). 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 we can do so by selling additional shares of our common stock under the ATM Agreement. 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$2.9 million of marketable public equity securities held atMarch 31, 2022 . 25
© Edgar Online, source
