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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

or

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                    to                                   

Commission file number: 001-40511

Moving iMage Technologies, Inc.

(Exact name of Registrant as specified in its charter)

Delaware

85-1836381

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

17760 Newhope Street,

Fountain Valley, California

92708

(Address of principal executive offices)

(Zip Code)

(714) 751-7998

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.00001 par value

MITQ

NYSE American

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No .

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No .

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No .

As of May 13, 2024, there were 10,185,370 shares of the registrant’s common stock, par value $0.00001 per share, outstanding.

MOVING iMAGE TECHNOLOGIES, INC.

TABLE OF CONTENTS

 

    

Page

PART I - FINANCIAL INFORMATION

ITEM 1.

Financial Statements

Condensed Consolidated Balance Sheets as of March 31, 2024 (unaudited) and June 30, 2023

2

Condensed Consolidated Statements of Operations (unaudited) for the three months and nine months ended March 31, 2024 and 2023

3

Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three and nine months ended March 31, 2024 and 2023

4

Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended March 31, 2024 and 2023

5

Notes to Unaudited Condensed Consolidated Financial Statements

6

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

27

ITEM 4.

Controls and Procedures

28

 

PART II - OTHER INFORMATION

28

 

ITEM 1.

Legal Proceedings

28

ITEM 1A.

Risk Factors

28

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

ITEM 3.

Defaults Upon Senior Securities

29

ITEM 4.

Mine Safety Disclosures

29

ITEM 5.

Other Information

29

ITEM 6.

Exhibits

29

SIGNATURES

30

2

PART I – FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

MOVING IMAGE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands except share and per share amounts)

    

March 31,

June 30, 

    

2024

    

2023

(unauditied)

Assets

 

  

 

  

 

Current Assets:

 

  

 

  

 

Cash

$

5,946

$

6,616

Accounts receivable, net

 

890

 

905

Inventories, net

 

4,220

 

4,419

Prepaid expenses and other 

 

938

 

451

Total Current Assets

 

11,994

 

12,391

Long-Term Assets:

 

  

 

  

Right-of-use asset

214

415

Property and equipment, net

 

31

 

28

Intangibles, net

 

437

 

480

Other assets

 

16

 

16

Total Long-Term Assets

 

698

 

939

Total Assets

$

12,692

$

13,330

 

 

  

Liabilities And Stockholders’ Equity

 

  

 

  

Current Liabilities:

 

  

 

  

Accounts payable

$

1,457

$

1,507

Accrued expenses

 

747

 

618

Customer deposits

 

3,895

 

3,169

Lease liability–current

 

224

 

280

Unearned warranty revenue 

 

52

 

26

Total Current Liabilities

 

6,375

 

5,600

 

  

 

  

Long-Term Liabilities:

 

  

 

  

Lease liability–non-current

 

 

151

Total Long-Term Liabilities

 

 

151

Total Liabilities

 

6,375

 

5,751

Stockholders’ Equity

 

 

Common stock, $0.00001 par value, 100,000,000 shares authorized, 10,285,971 and 10,685,778 shares issued and outstanding at March 31, 2024 and June 30, 2023, respectively

Additional paid-in capital

12,157

12,462

Accumulated deficit

(5,840)

(4,883)

Total Stockholders’ Equity

6,317

7,579

Total Liabilities and Stockholders’ Equity

$

12,692

$

13,330

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

MOVING IMAGE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except share and per share amounts)

(unaudited)

    

Three Months Ended

    

Three Months Ended

    

Nine Months Ended

    

Nine Months Ended

March 31, 

March 31, 

March 31, 

March 31, 

2024

2023

2024

2023

Net sales

$

3,890

$

3,741

$

13,790

$

14,435

Cost of goods sold

 

3,214

 

2,699

 

10,536

 

10,523

Gross profit

 

676

 

1,042

 

3,254

 

3,912

 

  

 

  

 

  

 

  

Operating expenses:

 

  

 

  

 

  

 

  

Research and development

 

73

 

66

 

212

 

195

Selling and marketing

 

547

 

663

 

1,717

 

1,867

General and administrative

 

705

 

839

 

2,421

 

2,464

Total operating expenses

 

1,325

 

1,568

 

4,350

 

4,526

Operating loss

 

(649)

 

(526)

 

(1,096)

 

(614)

Other income (expense)

 

  

 

  

 

  

 

  

Unrealized gain on marketable securities

81

243

Realized loss on marketable securities

(167)

Interest and other income, net

 

48

 

21

140

66

Total other income

 

48

 

102

 

140

 

142

Net income/(loss)

$

(601)

$

(424)

$

(956)

$

(472)

Weighted average shares outstanding: basic and diluted (Note 3)

10,436,519

10,956,413

10,593,229

10,947,790

Net profit/(loss) per common share basic and diluted

$

(0.06)

$

(0.04)

$

(0.09)

$

(0.04)

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

MOVING IMAGE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands except for share amounts)

(unaudited)

Three and Nine months ended March 31, 2024

    

Common Stock

    

Additional Paid-In

    

Accumulated

    

Shares

    

Amount

Capital

Deficit

Total

Balance as of June 30, 2023

10,685,778

$

$

12,462

$

(4,883)

$

7,579

Grant of options to officer

5

5

Net income

439

439

Balance as of September 30, 2023

10,685,778

$

$

12,467

$

(4,444)

$

8,023

Grant of options to officer

5

5

Share buyback and cancellation

(109,135)

(101)

(101)

Net loss

(794)

(794)

Balance as of December 31, 2023

10,576,643

$

$

12,371

$

(5,238)

$

7,133

Grant of options to officer

5

5

Issuance of stock to directors

18,938

13

13

Share buyback and cancellation

(260,024)

(200)

(200)

Share buyback and cancellation for officer

(49,586)

(33)

(33)

Net loss

(601)

(601)

Balance as of March 31, 2024

10,285,971

$

$

12,157

$

(5,840)

$

6,317

Three and Nine months ended March 31, 2023

Common Stock

    

Additional Paid-In

    

Accumulated

    

Shares

    

Amount

Capital

Deficit

Total

Balance as of June 30, 2022

10,828,398

$

$

12,500

$

(3,085)

$

9,415

Issuance of stock to employees

130,000

153

153

Net loss

(95)

(95)

Balance as of September 30, 2022

10,958,398

$

$

12,653

$

(3,180)

$

9,473

Net income

46

46

Balance as of December 31, 2022

10,958,398

$

$

12,653

$

(3,134)

$

9,519

Share buyback and cancellation

(47,467)

(49)

(49)

Net income

(424)

(424)

Balance as of March 31, 2023

10,910,931

$

$

12,604

$

(3,557)

$

9,047

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

MOVING IMAGE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

    

Nine Months Ended

March 31, 

2024

2023

Cash flows from operating activities:

Net income/(loss)

$

(956)

$

(472)

Adjustments to reconcile net (loss) to net cash (used in) operating activities:

Provision for credit losses

 

(52)

5

Inventory reserve

433

80

Depreciation expense

 

9

6

Amortization expense

 

43

72

ROU amortization

 

201

Stock option compensation expense

15

Realized gain on investments

(76)

Changes in operating assets and liabilities

Accounts receivable

 

67

778

Inventories

 

(234)

(883)

Prepaid expenses and other

 

(487)

289

Accounts payable

 

(50)

558

Accrued expenses

 

129

(6)

Unearned warranty revenue

 

26

30

Customer deposits

 

726

(1,066)

Lease liabilities

(207)

Net cash used in operating activities

 

(337)

(685)

Cash flows from investing activities

Sales of marketable securities

12,418

Purchases of marketable securities

(7,660)

Purchases of property and equipment

(12)

(7)

Net cash provided by (used in) investing activities

 

(12)

4,751

Cash flows from financing activities

Share Buyback

(334)

(49)

Stock issued for Director expense

13

Net cash (used in) financing activities

 

(321)

(49)

Net increase (decrease) in cash

 

(670)

4,017

Cash, beginning of the year

 

6,616

2,340

Cash, end of the year

$

5,946

$

6,357

Non-cash investing and financing activities:

Issuance of stock to employees

$

$

153

Right-of-use assets from ASC842 adoption

$

$

681

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

NOTE 1 — BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization: Moving iMage Technologies, Inc., a Delaware corporation, together with its wholly owned subsidiaries unless the context indicates otherwise, the (“Company”) was incorporated in June 2020. The Company, through its wholly owned subsidiary, Moving iMage Technologies, LLC (“MiT LLC”) and MiT LLC’s wholly-owned subsidiary, Moving iMage Acquisition Co., (DBA “Caddy Products”), designs, integrates, installs and distributes proprietary and custom designed equipment as well as off the shelf cinema products needed for contemporary cinema requirements. The Company also offers single source solutions for cinema design, procurement, installation and service to the creative and production communities for screening, digital intermediate and other critical viewing rooms. Additionally, the Company offers a wide range of technical, design and consulting services such as custom engineering, systems design, integration and installation, and digital technology, as well as software solutions for operations enhancement and theatre management. The Company also provides turnkey furniture, fixture and equipment services to commercial cinema exhibitors for new construction and remodels including design, consulting, installation and project management as well as procurement of seats, lighting, acoustical treatments, screens, projection and sound.

Moving iMage Acquisition Co. (DBA “Caddy Products”) designs, develops and manufactures innovative products for the entertainment, cinema, grocery, worship, restaurant, sports and restroom industries.

Initial Public Offering: On July 12, 2021, the Company closed its initial public offering and issued 4,830,000 shares of its common stock at a price of $3.00 per share for net proceeds of approximately $12,360,000 after deducting underwriting discounts, commissions, and other expenses of approximately $2,130,000.

On July 12, 2021, in connection with the IPO, warrants to purchase 139,611 shares of the Company’s common stock were exercised on a cashless basis.

7

NOTE 1 — BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Impact of the COVID-19 Pandemic: The COVID-19 pandemic has had an unprecedented impact on the world and the movie exhibition industry. The social and economic effects have been widespread. At various points during the pandemic, authorities around the world-imposed measures intended to control the spread of COVID-19, including stay-at-home orders and restrictions on large public gatherings, which caused movie theaters in countries around the world to temporarily close. The repercussions of the COVID-19 global pandemic resulted in a significant impact to our customers, specifically those in the entertainment and cinema industries. As a result, the Company implemented various cash preservation strategies, including, but not limited to, temporary personnel and salary reductions, halting non-essential operating and capital expenditures, and negotiating modified timing and/or abatement of contractual payments with landlords and other major suppliers.

Throughout 2020 and through 2022 the theatres reopened as soon as local restrictions and the status of the COVID-19 pandemic would allow. As of March 31, 2024, a large majority of domestic and international theatres were open. The industry’s recovery to historical levels of new film content, both in terms of the number of new films and box office performance, is still underway, as the industry also continues to adjust to evolving theatrical release windows, competition from streaming and other delivery platforms, supply chain delays, inflationary pressures, labor shortages, wage rate pressures and other economic factors.

Based on the management’s current estimates of recovery, it believes it will generate sufficient cash to sustain operations for a period of 12 months from the issuance of these financial statements. Nonetheless, the COVID-19 pandemic has had, and continues to have, adverse effects on the Company’s business, results of operations, cash flows and financial condition.

Principles of Consolidation: The condensed consolidated financial statements include the accounts of MiT Inc., its wholly owned subsidiary, MiT LLC, and MiT LLC’s wholly-owned subsidiary, Moving iMage Acquisition Co., (DBA “Caddy Products”). All significant intercompany transactions and balances have been eliminated in consolidation.

Basis of Presentation: The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Unaudited Interim Condensed Consolidated Financial Statements: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP. However, in the opinion of the management of the Company, all adjustments of a normal recurring nature necessary for a fair presentation of the financial position and operating results have been included in these statements. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended June 30, 2023, and with the disclosures and risk factors presented therein. The June 30, 2023 condensed consolidated balance sheet has been derived from the audited consolidated financial statements. Operating results for the three and nine months ended March 31, 2024 are not necessarily indicative of the results that may be expected for any subsequent quarters or for the year ending June 30, 2024.

8

NOTE 1 — BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Marketable Securities: In March 2023, the Company sold all its marketable securities with the proceeds deposited to the Company’s cash account. As a result, the prior fair value and market data disclosure are no longer needed for the period ended March 31, 2024 and June 30, 2023.

The carrying amounts of accounts receivable and accounts payable approximate fair value due to their short maturities.

Assets and Liabilities Measured on a Non-recurring Basis - In addition to assets and liabilities that are measured at fair value on a recurring basis, we also measure certain assets and liabilities at fair value on a nonrecurring basis. Our non-financial assets, including goodwill, intangible assets and property and equipment, are measured at fair value when there is an indication of impairment and the carrying amount exceeds the asset’s projected undiscounted cash flows. These assets are recorded at fair value only when an impairment charge is recognized. For the year ended June 30, 2023, the Company impaired $(0.287) million in Goodwill, $(0.363) million in Intangible assets and $(0.304) million in Note Receivables. There were no impairments recognized in the three and nine month periods ended March 31, 2024.

Use of Estimates: The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities (including sales returns, bad debts, inventory reserves, warranty reserves, purchase price allocation and asset impairments), disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates.

Concentration of Cash: The Company maintains its cash in bank accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. Management believes the Company is not exposed to any significant credit risk on its cash balances.

Accounts Receivable: Accounts receivables are carried at original invoice amount less allowance for credit losses. Management determines the allowance for credit losses by identifying troubled accounts and by using historical experience applied to an aging of accounts. Accounts receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received. Accounts receivables are considered to be past due if any portion of the receivable balance is outstanding for more than 90 days past the customer’s granted terms. The Company does not charge interest on past-due balances or require collateral on its accounts receivable. As of March 31, 2024 and June 30, 2023 the allowance for credit losses is approximately $75,000 and $127,000, respectively.

Inventories: Inventories are stated at the lower of cost or net realizable value, with cost being determined on the first-in, first-out cost method of accounting. The Company purchases finished goods and materials to assemble kits in quantities that it anticipates will be fully used in the near term. Changes in operating strategy, customer demand, and fluctuations in market values can limit the Company’s ability to effectively utilize all products purchased and can result in finished goods with above-market carrying costs which may cause losses on sales to customers. The Company’s policy is to closely monitor inventory levels, obsolescence and lower market values compared to costs and, when necessary, reduce the carrying amount of its inventory to its net realizable value. As of March 31, 2024 and June 30, 2023, the inventory reserve was $1,017,000 and $584,000, respectively, and inventory on hand was comprised primarily of finished goods ready for sale.

Revenue Recognition: The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”).

Revenue is recognized when control of the promised goods is transferred at the point of shipment to a customer, and when performance conditions are satisfied at the customer location, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods as per the agreement with the customer. The Company generates all its revenue from agreements with customers based on equipment shipment dates and when customer location work is completed. In case agreements with multiple performance obligations, the Company identifies each performance obligation and evaluates whether the performance obligations are distinct within the context of the agreement at the agreement’s inception. Performance obligations that are not distinct at agreement inception are combined. The Company allocates the transaction price to each distinct performance obligation

9

NOTE 1 — BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

proportionately based on the estimated standalone selling price for each performance obligation and then evaluates how the services are transferred to the customer to determine the timing of revenue recognition.

The Company considers the U.S. GAAP criteria for determining whether to report revenue gross as a principal versus net as an agent. Factors considered include whether the Company is the primary obligor, has risks and rewards of ownership, and bears the risk that a customer may not pay for the products provided or services performed. If there are circumstances where the above criteria are not met, revenues recognized are presented net of cost of goods sold.

Contract assets consist of conditional or unconditional rights to consideration. Accounts receivable represent amounts billed to customers where the Company has an enforceable right to payment for performance completed to date (i.e., unconditional rights to consideration). The Company does not have contract assets that represent conditional rights to consideration.

Contract liabilities consist of customer refunds and warranty liabilities, as well as deposits received in advance on sales to certain customers. Such deposits are reflected as customer deposits and recognized in revenue when control of the products is transferred or when performance conditions are satisfied per the agreement. The change in contract liabilities (customer deposits and unearned warranty revenue) during the nine months ended March 31, 2024 included $0.999 million for revenue recognized that was included in contract liability as of July 1, 2023.

Contract Liabilities ($ in Thousands)

    

March 31, 2024

    

June 30, 2023

Customer deposits

$

3,895

$

3,169

Unearned warranty revenue

 

52

 

26

Customer refunds

370

139

Total contract liabilities

$

4,317

$

3,334

Cost of goods sold includes cost of inventory sold during the period, net of vendor discounts and allowances, and shipping and handling costs, and sales taxes. Taxes collected from customers are included in accounts payable on a net basis (excluded from revenues) until remitted to the government.

Deferred contract acquisition costs consist of sales commissions paid to the sales force, and the related employer payroll taxes, and are considered incremental and recoverable costs of obtaining a contract with a customer. The Company has determined that sales commissions paid are an immaterial component of obtaining a customer’s contract and has elected to expense sales commissions when earned.

Three Months Ended

Nine Months Ended

Disaggregation of Revenue ($ in Thousands):

    

March 31, 2024

    

March 31, 2023

    

March 31, 2024

    

March 31, 2023

Equipment upon delivery (point in time)

$

3,767

$

3,669

$

13,484

$

14,100

Installation (point in time)

 

107

 

60

 

255

 

293

Software and services (over time)

 

16

 

12

 

51

 

42

Total revenues

$

3,890

$

3,741

$

13,790

$

14,435

Revenue from the sale of equipment is recognized upon shipment of such equipment to customers and when performance conditions are satisfied at the custom location.

Revenue from installation is recognized upon completion of the installation project and when the performance obligation is complete.

Software subscription revenue for remote monitoring services is recognized on a straight-line basis over the term of the contract, usually one year. Services revenues are generally recognized over time as the contracts are performed.

Returns and Allowances: The Company records allowances for discounts and product returns at the time of sale as a reduction of revenue as such allowances can be reliably estimated based on historical experience and known trends.

10

NOTE 1 — BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Shipping and Handling Costs: Shipping and handling costs are included in cost of goods sold and are recognized as a period expense during the period in which they are incurred.

Advertising Costs: Advertising costs were approximately $13,600 and $8,600 for the three months ended March 31, 2024 and 2023, respectively, and $23,200 and $19,000 for the nine months ended March 31, 2024 and 2023, respectively. Advertising costs are expensed as incurred within selling and marketing expenses.

Intangible assets: Intangible assets arising from business combinations, such as customer relationships, trade names, and/or intellectual property, are initially recorded at fair value. The Company amortizes these intangible assets over the determined useful life which generally ranges from 11 to 20 years. Management reviews its intangible assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be fully recoverable. There were no intangible asset impairments recognized for the three months and nine months ended March 31, 2024 or 2023.

Business Combinations: The Company includes the results of operations of the businesses that it acquires commencing on the respective dates of acquisition. The Company allocates the fair value of the purchase price of its acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill.

Income Taxes: The Company utilizes an asset and liability approach for financial accounting and reporting for income taxes. The provision for income taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax basis of the Company’s assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The following table summarizes the components of deferred tax assets and deferred tax liabilities at March 31, 2024 and June 30, 2023 (in thousands):

    

Deferred Tax Assets (Liabilities)

March 31, 2024

    

June 30, 2023

Inventory reserve

$

285

$

163

Accumulated depreciation

 

(7)

 

(5)

Accumulated goodwill amortization

 

65

 

(13)

Accumulated intangible amortization

 

126

130

Unrealized loss on investments

 

-

68

Deferred rent

 

3

 

4

Warranty reserve

 

14

 

7

Stock compensation

 

68

68

Net operating loss carryforward

 

1,197

1,097

Allowance for doubtful accounts

 

42

 

36

Net

1,793

1,555

Valuation allowance

 

(1,793)

 

(1,555)

Total

$

$

Leases: On July 1, 2022 the Company adopted ASU 2016-02, Leases (Topic 842) which requires lessees to recognize assets and liabilities for the rights and obligations created by most leases on their balance sheet. In accordance with ASC 842, on July 1, 2023 the Company recognized Right of Use Assets in the amount of $665,000 and a lease liability of $681,000 for the leases associated with its executive office and warehouse space, as described in Note 9.

11

NOTE 1 — BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Product Warranty: The Company’s digital equipment products are sold under various limited warranty arrangements ranging from one year to three years. Company policy is to establish reserves for estimated product warranty costs in the period when the related revenue is recognized. The Company has the right to return defective products for up to three years, depending on the manufacturers’ individual policies. As of March 31, 2024 and June 30, 2023, the Company has established a warranty reserve of $65,000 and $53,000, respectively, which is included in accrued expenses in the accompanying condensed consolidated balance sheets.

The changes in the Company’s aggregate warranty liabilities were as follows for the following periods (in thousands):

Nine Months Ended March 31,

Year Ended June 30, 

    

2024

    

2023

Product warranty liability beginning of period

$

53

$

55

Accruals for warranties issued

 

178

 

162

Change in estimates

 

 

Settlements made

 

(166)

 

(164)

Product warranty liability end of the period

$

65

$

53

Research and Development: The Company incurs costs to develop new products, as well as improve the appeal and functionality of its existing products. Research and development costs are charged to expense when incurred.

Recently Issued Accounting Pronouncements: In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016-13”), which significantly changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 replaces the existing incurred loss model with an expected credit loss model that requires entities to estimate an expected lifetime credit loss on most financial assets and certain other instruments. Under ASU 2016-13 credit impairment is recognized as an allowance for credit losses, rather than as a direct write-down of the amortized cost basis of a financial asset. The impairment allowance is a valuation account deducted from the amortized cost basis of financial assets to present the net amount expected to be collected on the financial asset.

The Company adopted the new pronouncement on July 1, 2023. The allowance for credit losses has been adjusted for management’s current estimate at each reporting date. The new guidance provides no threshold for recognition of impairment allowance. Therefore, entities must also measure expected credit losses on assets that have a low risk of loss. For instance, trade receivables that are either current or not yet due may not require an allowance reserve under currently generally accepted accounting principles, but under the new standard, Management has estimated an allowance for expected credit losses on trade receivables.

Due to the Management’s continuing ability to obtain 90% of contract value in up-front customer deposits, the Company’s risk is only the remaining 10% of the customer’s contract value. The combined effect of up-front customer deposits, prompt collection of trade receivables and application of historical aging criteria has resulted in minimal bad debts and allowances for credit losses.

NOTE 2 — INVESTMENTS

In March 2023, the Company sold all its marketable securities with the proceeds deposited to the Company’s cash account.

12

NOTE 3 — LOSS PER SHARE

Basic loss per share data for each period presented is computed using the weighted average number of shares of common stock outstanding during each such period. Diluted loss per share data is computed using the weighted average number of common and potentially dilutive securities outstanding during each period. Potentially dilutive securities consist of shares that would be issued upon the exercise of stock options and warrants, computed using the treasury stock method. A reconciliation of basic and diluted loss per share is as follows:

Dollars in Thousands

    

For the Three Months Ended

    

For the Nine Months Ended

    

For the Three Months Ended

    

For the Nine Months Ended

March 31, 

March 31, 

March 31, 

March 31, 

2024

2024

2023

2023

Numerator:

 

  

 

  

 

  

 

  

Net income/(loss)

$

(601)

$

(956)

$

(424)

$

(472)

Denominator:

 

  

 

  

 

  

 

  

Weighted average common shares outstanding, basic and diluted

 

10,436,519

10,593,229

 

10,956,413

10,947,790

Profit/(loss) per share

 

  

 

  

 

  

 

  

Basic and diluted

$

(0.06)

$

(0.09)

$

(0.04)

$

(0.04)

The following securities were excluded from the calculation of diluted loss per share in each period because their inclusion would have been anti-dilutive:

    

For the Three Months Ended

    

For the Nine Months Ended

    

For the Three Months Ended

    

For the Nine Months Ended

March 31, 

March 31, 

March 31, 

March 31, 

2024

2024

2023

2023

Options

 

 

 

150,000

 

150,000

Warrants

 

 

 

 

Total potentially dilutive shares

 

 

 

150,000

 

150,000

For the three and nine months ended March 31, 2024 the Company had a net loss. However, all potentially dilutive securities were also deemed to be anti-dilutive because their exercise price exceeded the weighted average trading price of the Company’s stock for the period.

13

NOTE 4 — PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

March 31, 

June 30, 

    

2024

    

2023

Production equipment

$

308

$

308

Leasehold improvements

 

213

 

213

Furniture and fixtures

 

45

 

45

Computer equipment

 

72

 

60

Other equipment

 

120

 

120

Total

 

758

 

746

Accumulated depreciation

 

(727)

 

(718)

Net property and equipment

$

31

$

28

Depreciation expense related to property and equipment was $3,500 and $2,000 for the three months ended March 31, 2024 and 2023, respectively of which $0 and $0 is included in cost of goods and $3,500 and $2,000 in general and administrative expense, respectively. Depreciation expense related to property and equipment was $9,000 and $6,000 for the nine months ended March 31, 2024 and 2023, respectively of which $9,000 and $3,000 in general and administrative expense, respectively.

Depreciation of property and equipment is calculated using the straight-line method over their estimated useful lives as follows:

    

Useful Lives

Leasehold improvements

 

5 years or remaining lease term

Furniture and fixtures

 

5 years

Production equipment

 

37 years

Computer equipment

 

3 years

Other equipment

 

37 years

NOTE 5 — INTANGIBLE ASSETS

The following table summarizes the Company’s intangible assets as of March 31, 2024 (in thousands):

Amortization

Gross Asset

Accumulated

Net Book

    

Period

    

Cost

    

Amortization

    

Value

Customer relations

 

11 years

$

970

$

647

$

323

Patents

 

20 years

 

70

 

16

 

54

Trademark

 

20 years

 

78

 

18

 

60

 

  

$

1,118

$

681

$

437

14

NOTE 5 — INTANGIBLE ASSETS (continued)

The following table summarizes the Company’s intangible assets as of June 30, 2023 (in thousands):

Amortization

Gross Asset

Accumulated

Net Book

    

Period

    

Cost

    

Amortization

    

Value

Customer relations

 

11 years

$

970

$

609

$

361

Patents

 

20 years

 

70

 

14

 

56

Trademark

 

20 years

 

78

 

15

 

63

 

  

$

1,118

$

638

$

480

Amortization expense was $15,000 and $24,000 for the three months ended March 31, 2024 and 2023, respectively, and was $43,000 and $72,000 for the nine months ended March 31, 2024 and 2023, respectively, and is included in general and administrative expense.

Estimated amortization expense related to intangible assets subject to amortization at March 31, 2024 in each of the years subsequent to March 31, 2024, and thereafter is as follows (amounts in thousands):

2024

 

$

15

2025

 

59

2026

 

59

2027

 

59

Thereafter

 

245

Total

$

437

NOTE 6 — ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

March 31, 

June 30, 

    

2024

    

2023

Employee compensation

$

231

$

180

Accrued warranty

65

53

Customer refund

370

139

Legal fees

-

56

Freight

10

29

Sales tax

11

27

Others

 

60

 

134

Total

$

747

$

618

15

NOTE 7 — STOCKHOLDERS’ EQUITY

In 2019, the Company adopted the 2019 Omnibus Incentive Plan (the “Plan”). The Plan, as amended, provides for the issuance of stock-based awards to employees. As of March 31, 2024, the Plan provides for the issuance of up to 1,500,000 stock-based awards. There are 1,220,000 stock-based awards available to grant under the Plan at March 31, 2024.

In July 2021, MiT Inc. entered into an Exchange Agreement with MiT LLC pursuant to which MiT Inc. agreed to exchange membership units for 2,350,000 shares of Common Stock representing 41.4% of the equity as of such date on a fully diluted basis for no consideration. The shares were exchanged as part of the Exchange Agreement with the Company as described in Note 1.

In July 2021, the Company granted options to non-employee directors to purchase an aggregate of 150,000 shares of its common stock at an exercise price of $3.00 per share. The options vest one year from the date of grant, expire ten years from the date of grant and had an aggregate grant date fair value of $244,200, which was recognized ratably over the vesting period. On May 26, 2023, the Board of Directors cancelled 150,000 options consisting of 50,000 options each to John Stiska, Katherine Crothall and Scott Anderson with an exercise price of $3.00. In its place, the Board granted <