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COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS
12 Months Ended
Jun. 30, 2023
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS

 

5.COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS

Investments

Investments are stated at market value and consist of the following (in thousands):

           
      
   Years Ended June 30, 
   2023   2022 
Current:      (Restated) 
Marketable equity securities – short-term   $1,134   $755 
Long-term:          
Warrant    6,160    2,304 
Marketable equity securities – long-term    1,361    1,779 
Total Investments   $8,655   $4,838 

 

Marketable equity securities at June 30, 2023 and 2022 had an aggregate cost basis of $2,714,000 and $2,796,000, respectively. Both current and long-term marketable equity securities include equity securities of public companies that are thinly traded. We classified certain investments as long term in nature because even if we decide to sell the stocks we may not be able to sell our position within one year. At June 30, 2023, the investments included net unrealized losses of $219,000 (gross unrealized losses of $286,000 offset by gross unrealized gains of $67,000). At June 30, 2022, the investments included net unrealized losses of $262,000 (gross unrealized losses of $369,000 offset by gross unrealized gains of $107,000).

Of the total marketable equity securities at June 30, 2023 and 2022, $1,134,000 and $755,000, respectively, represent an investment in the common stock of Air T, Inc. Two of our Board members, Messrs. Swenson and Cabillot, are also board members of Air T, Inc. and both either individually or through affiliates own an equity interest in Air T, Inc. Mr. Swenson, our Chairman, also serves as the chief executive officer and chairman of Air T, Inc. Another of our Board members is employed by Air T as its Chief of Staff. The shares have been purchased through 10b5-1 Plans that, in accordance with our internal policies regarding the approval of related-party transactions, were approved by our then three Board members that are not affiliated with Air T, Inc.

The warrant represents our right to purchase up to 5% of the outstanding stock of Monogram Orthopaedics Inc. (“Monogram”) which we were granted on December 18, 2018. By way of background, we invested in Monogram, a medical device start-up specializing in precision, patient specific implants in fiscal 2017, by making an $800,000 loan to Monogram pursuant to a promissory note in the same amount. At that time, our Chief Executive Officer, Mr. Van Kirk, was appointed to Monogram’s board of directors, a position he has held through the date of this filing. We impaired our entire $800,000 investment in the fourth quarter of fiscal 2018 due to indications that Monogram had exhausted its cash and had been unable to obtain additional financing to enable continued research to commercialize their technology. In fiscal 2019, we modified the promissory note to allow Monogram more time to re-pay the note and, concurrently, we were issued the warrant, with an exercise price of $1,250,000, which at the time we deemed of de minimis value. During the fourth quarter of fiscal 2020, Monogram repaid the promissory note with interest, but at that time and through the end of the third quarter of fiscal 2023, we considered the warrant to be of little value and therefore did not record it as an investment on our consolidated balance sheet. In May of 2023, Monogram raised funds through a Regulation A+ offering filed with the Securities and Exchange Commission and contemporaneously converted all of its outstanding preferred stock to common shares and publicly listed its common shares on the NASDAQ under the ticker symbol MGRM. The valuation of the warrant for all prior periods is the subject of the restatement of our previous financial statements because the value of $0 we had ascribed to the Monogram Warrant in previous periods want not based on its estimated fair value (See Note 2).

At June 30, 2023 and 2022, the warrant was exercisable into a total of 1,823,058 and 783,386 shares of Monogram’s outstanding stock. The estimated fair value of the warrant at June 30, 2023 and 2022 was $6,160,000 and $2,304,000, respectively, using a Black-Scholes valuation model with the following assumptions:

       
   June 30,
2023
   June 30,
2022
 
Stock Price (common)   $3.98   $3.02 
Strike Price (common)   $.69   $1.60 
Time until expiration (years)    2.48    3.48 
Volatility    60.0%   60.0%
Risk-free interest rate    4.68%   3.00%
           

 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 and Mr. Swenson, who chairs the committee. Both Mr. Cabillot and Mr. 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, such as Air T, Inc.

Inventory

Inventory is stated at the lower of cost (first-in, first-out) or net realizable value and consists of the following (in thousands):

           
      
   June 30, 
   2023   2022 
Raw materials /purchased components   $8,824   $6,323 
Work in process    3,686    3,463 
Sub-assemblies /finished components    2,387    2,118 
Finished goods    1,270    774 
Total inventory   $16,167   $12,678 
           

Land and Building

 

Land and building consist of the following (in thousands):

           
      
   June 30,
2023
   June 30,
2022
 
Land   $3,684   $3,684 
Building    2,815    2,815 
Total    6,499    6,499 
Less: accumulated depreciation    (250)   (156)
   $6,249   $6,343 

 

On November 6, 2020, we acquired the Franklin Property for a total purchase price of $6.5 million, of which we paid $1.3 million in cash and the balance of $5.2 million we financed through Minnesota Bank & Trust (“MBT”) (see Note 8). We substantially completed the build-out of the property in the first quarter of fiscal 2022. In the fourth quarter of fiscal 2023 we substantially completed all of our validation activities, and we moved our repairs and assembly departments to the new facility. The building is being amortized on a straight-line basis over a period of 30 years.

Equipment and Improvements

 

Equipment and improvements consist of the following (in thousands):

       
   June 30, 
   2023   2022 
Office furnishings and fixtures   $1,957   $2,224 
Machinery and equipment    6,675    6,661 
Automobiles    21    21 
Improvements    4,737    4,271 
Total    13,390    13,177 
Less: accumulated depreciation and amortization    (8,311)   (8,344)
   $5,079   $4,833 

 

Depreciation expense for the years ended June 30, 2023 and 2022 amounted to $727,000 and $616,000, respectively. During fiscal 2023, fully depreciated assets in the amount of $760,000 were retired. During fiscal 2022, $87,000 of assets were retired either due to physical disposal or major part replacement with a net book value of $35,000 recorded as a loss on disposal of equipment in our consolidated income statement.

Intangibles

Intangibles consist of the following (in thousands):

       
   June 30,
2023
   June 30,
2022
 
Patent-related costs   $208   $208 
Less accumulated amortization    (127)   (90)
   $81   $118 

Amortization expense for the years ended June 30, 2023 and 2022 amounted to $37,000 and $16,000, respectively.

Patent-related costs consist of legal fees incurred in connection with both patent applications and patent issuances, and will be amortized over the estimated life of the product(s) that is or will be utilizing the technology, or expensed immediately in the event the patent office denies the issuance of the patent. During fiscal 2022, we impaired $84,000 of previously capitalized legal fees due to uncertainty relating to future benefit. This impairment expense was included in research and development costs in our consolidated income statement. Future amortization expense is estimated to be no more than $30,000 per year and all remaining costs are expected to be fully amortized within three years.

Accrued Liabilities

 

Accrued liabilities consist of the following (in thousands):

          
      
   June 30, 
   2023   2022 
Payroll and related items   $650   $509 
Accrued inventory in transit    637    177 
Accrued legal and professional fees    216    275 
Accrued bonuses    400    430 
Current portion of lease liability    416    379 
Warranty    200    340 
Accrued customer rebate    480    517 
Other    136    124 
Total accrued expenses   $3,135   $2,751