MOVING iMAGE TECHNOLOGIES INC. 10-K

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is listed on the NYSE American (the “NYSE”) under the symbol “MITQ.” Holders As of September 18, 2021, there were 21 holders of record of our common stock. Dividends We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our shares of common stock will be your sole source of gain for the foreseeable future. Issuer’s Purchases of Equity Securities None. Use of Proceeds from Initial Public Offering On July 7, 2021, we entered into an underwriting agreement with Boustead Securities, LLC, acting as representative of the several underwriters named in the underwriting agreement, relating to the our public offering pursuant to which we agreed to issue and sell 4,200,000 shares of common stock and granted the underwriters a 45-day option to purchase up to an additional 630,000 shares of common stock. The shares were sold to the public at a public offering price of $3.00 per share. The public offering closed on July 12, 2021 and we sold an aggregate of 4,830,000 shares of common stock, including 630,000 shares pursuant to the over-allotment option, for total gross proceeds of approximately $14.5 million. We received approximately $11.5 million of net proceeds from the sale of the common stock after deducting underwriting discounts and commissions of approximately $1.3 million and estimated offering expenses of approximately $1.7 million payable by us. We currently intend to use up to approximately $6.0 million of the net proceeds from our initial public offering to fund the expansion of our sales and marketing activities, with the balance added to working capital which may include the funding of strategic acquisitions. We have not yet identified any acquisition candidates. In October 2019, the Company executed a loan agreement with an unaffiliated lender to provide a $1.0 million asset-based bridge loan to be used for working capital purposes. Approximately $400,000 of the net proceeds of this loan were used to pay the $400,000 loan amount due to Caddy, in connection with the acquisition of Caddy, on October 24, 2019. The Company used a portion of the net proceeds of the offering to repay the approximately $590,000 balance due to the unaffiliated lender. The loan was secured by all assets of the Company and was personally guaranteed by Phil Rafnson, our Chairman of the Board. Sound Management Investors, LLC, an entity controlled by Mr. Rafnson, pledged all membership units of the Company held by it as further security for the repayment of such loan. 22 Securities Authorized for Issuance Under Equity Compensation Plans There were no securities authorized for issuance under the Stock and Incentive Plan as of fiscal year end June 30, 2021. ITEM 6. RESERVED ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and related notes included elsewhere in this Report. This discussion contains forward-looking statements reflecting our current expectations, whose actual outcomes involve risks and uncertainties. Actual results and the timing of events may differ materially from those stated in or implied by these forward-looking statements due to a number of factors, including those discussed in the sections entitled “ Risk Factors ” and “ Cautionary Note Regarding Forward-Looking Statements ” , and elsewhere in this Report. 23 Overview We are a digital cinema company who designs, manufactures, integrates, installs and distributes a full suite of proprietary and custom designed equipment as well as off the shelf cinema products needed for contemporary cinema requirements. We also offer 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. We offer 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 theater management. We also provide turnkey furniture, fixture and equipment services, or FF&E, 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. MiT ’ s products and services focus on the integration needs associated with high quality motion picture exhibition. We provide purpose-built products for digital cinema, 3D, pre-show/alternative content and a variety of entertainment and educational applications. As a hybrid manufacturer and reseller, MiT offers turnkey custom solutions for a variety of applications. Our staff of mechanical and electrical engineers work closely with end users as well as OEM manufacturers, and can participate in every phase of the process from conceptual design and development to production on most any scale. MiT personnel have designed, specified and installed thousands of commercial cinemas, post production, screening and high-end residential rooms. Through its wholly-owned subsidiary, Moving iMage Acquisition Co. (DBA “Caddy Products”), the Company designs, develops and manufactures innovative products for the entertainment, cinema, grocery, worship, restaurant, sports and restroom industries. On July 7, 2021, in connection with our initial public offering, we entered into an Exchange Agreement (the “Exchange Agreement”) whereby the equity holders of Moving iMage Technologies, LLC, a Delaware limited liability company (“MiT LLC”), assigned and transferred to the Company their units of MiT LLC, in exchange for an aggregate of 2,350,000 shares of Common Stock of the Company (the “Share Exchange”). MiT LLC is considered the acquirer for accounting purposes. Prior to the effective date of the IPO, MiT LLC was a limited liability company treated as a partnership for federal and state income tax purposes with all income tax liabilities and/or benefits of MiT LLC being passed through to the members. As such, there is no recognition of federal or state income taxes provided for in the accompanying financial statements. Any uncertain tax position taken by the members is not an uncertain position of MiT LLC. The table below summarizes, as of June 30, 2021, after giving effect to the Share Exchange, and the sale by us of shares of our common stock in our initial public offering, the number of shares of our common stock, the total consideration, and the average price per share (i) paid to us by our existing stockholders, which include the owners of the membership interests in MiT LLC, and (ii) to be paid by new investors participating in our initial public offering at an initial public offering price of $3.00 per share, before deducting underwriting discounts and commissions and offering expenses payable by us. Shares Acquired Total Consideration Average Number Percent Amount Percent Price Per Share Existing stockholders 5,666,667 54.0 % $ 1,114,029 7.1 % $0.20 New investors in the initial public offering 4,830,000 46.0 % 14,490,000 92.9 % $3.00 Total 10,496,667 100.0 % $ 15,604,029 100.0 % As a result of the Share Exchange, MiT LLC became a wholly-owned subsidiary of the Company and is the entity where the Company’s business operations are located. However, since the Share Exchange occurred subsequent to the Company’s fiscal year ended June 30, 2021, this Annual Report on Form 10-K includes the audited consolidated financial statements, and Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" discusses the results of operations, of MiT LLC for the fiscal year ended June 30, 2021. Factors affecting our performance Effect of COVID-19 global pandemic . In December 2019, COVID-19 was initially reported, and in March 2020, the World Health Organization characterized COVID-19 as a pandemic. COVID-19 has had a widespread and detrimental effect on the global economy as a result of the continued increase in the number of cases and affected countries and actions by public health and governmental authorities, businesses, other organizations and individuals to address the outbreak, including travel bans and restrictions, quarantines, shelter in place, stay at home or total lock-down orders and business limitations and shutdowns. The repercussions of the COVID-19 global pandemic resulted in a significant impact to our customers, specifically those in the entertainment and cinema industries. Cinemas have been shuttered since March 2020 in an effort to stem the spread of COVID-19 and studios, for the most part, have rescheduled their film releases until they can reopen. Specifically, the pandemic has had a material adverse effect on our business. A significant number of our customers have temporarily ceased operations and others have cancelled or pushed back the delivery of pending product orders and/or delayed the start of scheduled theater refurbishing and construction projects. In addition, we have experienced increased challenges in or cost of acquiring new customers and increased risk in collectability of accounts receivable. As a result of the aforementioned factors, our financial and operating results for the year ended June 30, 2021 have been and our projected financial and operating results for the balance of fiscal 2022 are expected to be materially adversely affected. 24 The ultimate impact of the COVID-19 pandemic on our business and results of operations beyond fiscal 2021 is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the COVID-19 pandemic and any additional preventative and protective actions that governments, or we or our customers, may direct, which may result in an extended period of continued business disruption and reduced operations. However, we expect that our results of operations, including revenues, in future periods will continue to be adversely impacted by the COVID-19 pandemic and its negative effects on global economic conditions, which include the possibility of a global recession. Recently, several of the larger theater chains have announced plans to reopen and there had been some initial openings in several state with limited occupancy. The ability of these chains to reopen in part or in whole is predicate in large part on decisions by state and local officials to allow, limit or prohibit the reopening of establishments such as cinemas in response to regionally specific COVID-19 outbreaks. It is reasonable to expect that any reopening ’ s will continue to be done on a gradual basis with limited occupancy and specific procedures, products, and technologies required to be implemented to protect the safety and health of returning patrons and employees. In response to uncertainties associated with the COVID-19 pandemic, we have taken, and are continuing to take, significant steps to preserve cash and remain in a strong competitive position when the current crisis subsides by eliminating non-essential costs, reducing employee hours and deferring all non-essential capital expenditures to minimum levels. Among other mitigating actions, we have implemented targeted furloughs, significantly reduced our service and distribution activities and temporarily reduced compensation of our executive officers and certain other employees. We have also implemented remote work policies for many employees, and the resources available to such employees may not enable them to maintain the same level of productivity and efficiency, and these and other employees may face additional demands on their time, such as increased responsibilities resulting from school closures or illness of family members. Our increased reliance on remote access to our information systems also increases our exposures to potential cybersecurity breaches. We cannot provide any assurance that these actions, or any other mitigating actions we may take, will help mitigate the impact of the COVID-19 pandemic on us. We cannot provide any assurance that our assumptions used to estimate our liquidity requirements will remain accurate due to the unprecedented nature of the disruption to our operations and the unpredictability of the COVID-19 global pandemic. As a consequence, our estimates of the duration of the pandemic and the severity of the impact on our future earnings and cash flows could change and have a material impact on our results of operations and financial condition. Furthermore, we received an aggregate of $1.39 million of financial support under the recently enacted COVID-19 relief legislation in the U.S. However, the legislation and guidance from the authorities continue to evolve; as such, the amount and timing of additional support, if any, that we could receive is not determinable at this time, and there can be no guarantees that we will receive additional financial support through these programs. In the event of a sustained market deterioration, and continued declines in revenues, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions. We cannot provide any assurance that we will be able to obtain additional sources of financing or liquidity on acceptable terms, or at all. Investment in growth . We have invested, and intend to continue to invest, in expanding our operations, increasing our headcount, developing our products and services to support our growth and expanding our infrastructure. We expect our total operating expenses to increase in the foreseeable future to meet our growth objectives. We plan to continue to invest in our sales and support operations with a particular focus in the near term of adding additional sales personnel to further broaden our support and coverage of our existing customer base, in addition to developing new customer relationships. Any investments we make in our sales and marketing organization will occur in advance of experiencing any benefits from such investments, and the return on these investments may be lower than we expect. In addition, as we invest in expanding our operations internationally, our business and results of operations will become further subject to the risks and challenges of international operations, including higher operating expenses and the impact of legal and regulatory developments outside the United States. Adding New Customers and Expanding Sales to Our Existing Customer Base . We intend to target new customers by continuing to invest in our field sales force. We also intend to continue to target large customers’ organizations who have yet to use our products and services. A typical initial order involves educating prospective customers about the technical merits and capabilities and potential cost savings of our products and services as compared to our competitors’ products. We believe that customer references have been, and will continue to be, an important factor in winning new business. We expect that a substantial portion of our future sales will be sales to existing customers, including expansion of their product and service offerings, as we offer new products and services through the existing sales channel. Our business and results of operations will depend on our ability to continue to add new customers and sell additional products and services to our growing base of customers. 25 Promoting our Brand and Offering Additional Products . Our future performance will depend on our continued ability to achieve brand recognition for our proprietary line of products. We plan to increase our marketing expenditures to continue to create and maintain prominent brand awareness. Also, our future performance will depend on our ability to continue to offer high quality, high performance and high functionality products and services. We intend to continue to devote efforts to introduce new products and services including new versions of our existing product lines. We expect that our results of operations will be impacted by the timing, size and level of success of these brand awareness and product and service offering efforts. Ability to Maintain Gross Margins . Our gross margins have been and are expected to continue to be affected by a variety of factors, including competition, the timing of changes in pricing, shipment volumes, new product introductions, changes in product mixes, changes in our purchase price of components and assembly and test service costs and inventory write downs, if any. Our goal is to strive to maintain gross profits for products that may have a declining average selling price by continuing to focus on increased sales volume and looking to reduce operating costs. Decreases in average selling prices are primarily driven by competition and by reduced demand for products that face potential or actual technological obsolescence. We also focus on managing our inventory to reduce our overall exposure to price erosion. In addition, we seek to introduce new products and services with higher gross margins to offset the potential effect of price erosion on other lines of products. For example, we have recently productized and began marketing a new system which combines full compliance with the Americans with Disabilities Act with a multi-language capability  —  this system will have higher margins than a substantial number of existing products we offer. In addition, our offerings of Direct View LED screens through our strategic arrangement with Samsung also carry significantly higher margins. Fluctuations in Revenues and Earnings . Both the sales cycle and the contract fulfillment cycle is dependent on a number of factors from our customers that are not in our control. Accordingly, backlog, the recognition of backlog into revenue and related earnings may fluctuate from quarter to quarter depending on our customers’ particular requirements, which can sometimes change between the initial signing of a contract to its ultimate fulfillment. Net sales The principal factors that have affected or could affect our net sales from period to period are: · The condition of the economy in general and of the cinema and/or cinema equipment industry in particular, · Our customers’ adjustments in their order levels, · Seasonality in our business, specifically our second fiscal quarter which is traditionally weaker, · Changes in our pricing policies or the pricing policies of our competitors or suppliers, · The addition or termination of key supplier relationships, · The rate of introduction and acceptance by our customers of new products and services, · Our ability to compete effectively with our current and future competitors, · Our ability to enter into and renew key relationships with our customers and vendors, · Changes in foreign currency exchange rates, · A major disruption of our information technology infrastructure, · Unforeseen catastrophic events such as the COVID-19 pandemic, armed conflict, terrorism, fires, typhoons and earthquakes, and · Any other disruptions, such as labor shortages, unplanned maintenance or other manufacturing problems. 26 Cost of goods sold Cost of goods sold includes the cost of products or components that we purchase from third party manufacturers plus assembly and packaging labor costs for these third parties or in-house designed products. Cost of goods sold is also affected by inventory obsolescence if our inventory management is not effective or efficient. We mitigate the risk of inventory obsolescence by stocking relatively small amounts of inventory at any given time, and relying instead on a strategy of manufacturing or acquiring products based on orders placed by our customers. General and administrative expenses General and administrative expenses relate primarily to compensation and associated expenses for personnel in general management, information technology, human resources, procurement, planning and finance, as well as outside legal, investor relations, accounting, consulting and other operating expenses. Selling and marketing expenses Selling and marketing expenses relate primarily to salary and other compensation and associated expenses for internal sales and customer relations personnel, advertising, outbound shipping and freight costs, tradeshows, royalties under a brand license, and selling commissions. Research and development expenses Research and development expenses consist of compensation and associated costs of employees engaged in research and development projects, as well as materials and equipment used for these projects, and third party compensation for research and development services. We do not engage in any long-term research and development contracts, and all research and development costs are expensed as incurred. Results of Operations Year ended June 30, 2021 compared to year ended June 30, 2020 Revenues Year Ended June 30, (in 000 ’ s) 2021 2020 $ 7,247 $ 16,367 Net revenues decreased 55.7% to $7.25 million for the year ended June 30, 2021 from $16.37 million for the prior fiscal year primarily due to the impact of COVID-19 on the exhibition industry. Backlog at June 30, 2021 and 2020 was $9.6 million and $10.9 million, respectively. Backlog represents orders expected to be realized in the next 6 months. Gross Profit Year Ended June 30, (in 000 ’ s), 2021 2020 $ 1,689 $ 4,334 Gross profit decreased 61.0% to $1.7 million for the year ended June 30, 2021 from $4.3 million for the prior fiscal year. As a percentage of total revenues, gross profit decreased to 23.3% for the year ended June 30, 2021 from 26.5% for the prior year. The decrease in gross margin as a percentage of revenues was driven primarily by product mix, as higher margin parts and services revenues made up a smaller percentage of total revenues. In addition, the margin decrease was affected by decrease in higher margin Caddy cupholder sales. 27 Research and Development Year Ended June 30, (in 000 ’ s) 2021 2020 $ 152 $ 240 Decrease in research and development expense primarily associated with the impact of COVID-19. We expect research and development expense to increase as a percentage of sales in the future as we continue to increase product development on our green product line, SaaS (software as a service) products, LED screen support systems, Caddy products, and others as our business expands into new areas. Selling, General and Administrative Expense Year Ended June 30, (in 000 ’ s) 2021 2020 $ 3,036 $ 4,714 The decrease in selling, general and administrative expense was due primarily to the impact of COVID-19 as the Company instituted cost containment measures, such as headcount reduction, executive pay reduction and cost avoidance. Interest and Other (Expense)/ Income Year Ended June 30, (in 000 ’ s) 2021 2020 $ 457 $ (263) The change in interest and other (expense)/income was primarily due to the inclusion of a gain associated with Payroll Protection Program (“PPP”) loan forgiveness of $.694 million, net of interest expense of $.237 million in 2021. The June 30, 2020 balance of $(.263) million consists entirely of interest expense. Net Loss Year Ended June 30, (in 000 ’ s) 2021 2020 $ (1,042) $ (883) Net loss was $(1,042) million for the year ended June 30, 2021 compared to a net loss of $(.883) million for the prior year. This increase in net loss was driven by lower revenue and related lower margins, partially offset by increase in other income. Liquidity and Capital Resources During the past several years, we have primarily met our working capital and capital resource needs from our operating cash flows and financing activities. We believe that our existing sources of liquidity, including cash, credit facilities and operating cash flow, will be sufficient to meet our projected capital needs for the foreseeable future. We had total cash of $1.269 million at June 30, 2021 compared to $1.058 million at June 30, 2020. On July 12, 2021, the Company completed an initial public offering resulting in net proceeds of approximately $11.5 million. Cash balance at August 31, 2021 was approximately $10.61 million. 28 In response to uncertainties associated with the COVID-19 pandemic, we have taken, and are continuing to take, significant steps to preserve cash and remain in a strong competitive position when the current crisis subsides by eliminating non-essential costs, reducing employee hours and deferring all non-essential capital expenditures to minimum levels. Among other mitigating actions, we have implemented targeted furloughs, significantly reduced our service and distribution activities and temporarily reduced compensation of our executive officers and certain other employees. We have also implemented remote work policies for many employees, and the resources available to such employees may not enable them to maintain the same level of productivity and efficiency, and these and other employees may face additional demands on their time, such as increased responsibilities resulting from school closures or illness of family members. Our increased reliance on remote access to our information systems also increases our exposures to potential cybersecurity breaches. We cannot provide any assurance that these actions, or any other mitigating actions we may take, will help mitigate the impact of the COVID-19 pandemic on us. We cannot provide any assurance that our assumptions used to estimate our liquidity requirements will remain accurate due to the unprecedented nature of the disruption to our operations and the unpredictability of the COVID-19 global pandemic. As a consequence, our estimates of the duration of the pandemic and the severity of the impact on our future earnings and cash flows could change and have a material impact on our results of operations and financial condition. Furthermore, we received an aggregate of $1.4 million of financial support under the recently enacted COVID-19 relief (PPP loan) legislation in the U.S. However, the legislation and guidance from the authorities continues to evolve; as such, the amount and timing of additional support, if any, that we could receive is not determinable at this time, and there can be no guarantees that we will receive additional financial support through these programs. In the event of a sustained market deterioration, and continued declines in revenues, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions. We cannot provide any assurance that we will be able to obtain additional sources of financing or liquidity on acceptable terms, or at all. 29 Cash Flows from Operating Activities Net cash used in operating activities was $1.631 million for year ended June 30, 2021, due primarily to the operating loss combined with a decrease in payables and an increase in prepaids and other. Net cash used was also impacted by an increase in customer deposits. Net cash used in operating activities was $576,000 for the year ended June 30, 2020, due to the operating loss combined with net changes in working capital items of $150,000. The net change in working capital was primarily due to a decrease in accounts receivable, offset by decreases in accounts payable, accruals and customer deposits. Cash Flows from Investing Activities Net cash used in investing activities was $2,000 for the year ended June 30, 2021. This was comprised entirely of capital expenditures. Net cash provided by investing activities was $126,000 for the year ended June 30, 2020. This included $128,000 of cash acquired as a part of the Caddy acquisition net of $2,000 of capital expenditures. Cash Flows from Financing Activities Net cash provided by financing activities was $1.8 million for the year ended June 30, 2021. This increase relates to a $1.334 million MITQ working capital loan proceeds, a second PPP Loan for $.698 million received net of payments on debt. Net cash provided by financing activities of $926,000 for the year ended June 30, 2020 was due to proceeds from our Line of Credit plus the first PPP Loan for $.694 million, less payments on notes payable. Financial Instruments and Credit Risk Concentrations Our top ten customers accounted for approximately 55% and 46% of net revenues for the years ended June 30, 2021 and 2020, respectively. Trade accounts receivable from these customers represented approximately 18% and 39% of net receivables at June 30, 2021 and 2020, respectively. While we believe our relationships with such customers are stable, most arrangements are made by purchase order and are terminable at will by either party. Specifically, as a result of the effects of the COVID-19 pandemic, a significant number of our customers have temporarily ceased operations and others have cancelled or pushed back the delivery of pending product orders and/or delayed the start of scheduled theater refurbishing and construction projects. In addition, we have experienced increased challenges in or cost of acquiring new customers. As a result of the aforementioned factors, our financial and operating results for the year ended June 30, 2021 have been and our projected financial and operating results for fiscal 2022 are expected to be materially adversely affected. A continued significant decrease or interruption in business from our significant customers would continue to have a material adverse effect on our business, financial condition and results of operations. We could also be adversely affected by such factors as changes in foreign currency rates and weak economic and political conditions in each of the countries in which we sell our products. Financial instruments that potentially expose us to a concentration of credit risk principally consist of accounts receivable and notes receivable. We sell products to a large number of customers in many different geographic regions. To minimize credit concentration risk, we perform ongoing credit evaluations of our customers ’ financial condition or use letters of credit. 30 Off-Balance Sheet Arrangements and Contractual Obligations Our off-balance sheet arrangements consist principally of leasing equipment and facilities under operating leases. The future estimated payments under these arrangements are summarized below: Operating leases (in 000’s) Total Payments 2022 $ 285 2023 293 2024 302 2025 174 Total future lease payments $ 1,054 There were no other material contractual obligations other than inventory and property, plant and equipment purchases in the ordinary course of business. Seasonality Our operating results can vary from quarter to quarter as a result of seasonality in consumer spending and payment patterns. A large part of our business is concerned with new theater builds, which often see substantial delays due to weather, but also financing timing, permits and governmental delays, and other unpredictable problems often associated with large real estate projects. Specifically, our revenue growth generally is higher during the first and fourth quarters of the fiscal year as the weather improves, the digital cinema market becomes more active and consumers begin new theater builds or remodel projects. During these periods, we tend to experience increased transaction volume. Conversely, our revenue growth generally slows during the second quarter of the fiscal year, as spending on new theater construction and theater improvement projects tends to slow leading up to the holiday season and through the winter months. As a result, growth in transaction volume also tends to slow during these periods. We expect this seasonality to continue for the foreseeable future, which may cause fluctuations in our operating results and financial metrics. However, our seasonality trends may vary in the future as we introduce new products to new industry verticals and we become less concentrated in the new theater construction and improvement sector. Inflation We believe that the relatively moderate rates of inflation in recent years have not had a significant impact on our net revenues or profitability. Historically, we have been able to offset any inflationary effects by either increasing prices or improving cost efficiencies. Recently Issued Accounting Pronouncements See Note 1, Business Activity and Summary of Significant Accounting Policies, to the consolidated financial statements for a description of recently issued accounting pronouncements. Critical Accounting Policies and Estimates The following accounting policies involve judgments and estimates used in preparation of the financial statements. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. Our accounting policies are discussed in Note 1 to the financial statements in this Report. Management believes the following critical accounting policies reflect its more significant estimates and assumptions used in the preparation of the financial statements. Revenue Recognition On July 1, 2019, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”) and all related Accounting Standards Updates by applying the modified retrospective method to all contracts that were not completed on July 1, 2019. The modified retrospective approach required the Company to recognize the cumulative effect of initially applying the new standard as an adjustment to the opening balance of members’ deficit on July 1, 2019. Comparative information has not been restated and continues to be reported under the historical accounting standards in effect for those periods. The adoption of the new revenue standard did not result in a cumulative effect adjustment to our members’ deficit since there was no significant impact upon adoption of the new standard. There was also no material impact to revenues, or any other financial statement line items for the year ended June 30, 2020 as a result of applying ASC 606. Our accounting policy relating to revenue recognition reflects the impact of the adoption of this new standard. As a result of our adoption of ASC 606, we record revenue based on a five-step model. We sell our goods on terms that transfer title and risk of loss at a specified location, which may be our warehouse, destinations designated by our customer, port of loading or port of discharge, depending on the final destination of the goods or overtime for services. Product revenue is recognized when control of the promised goods is transferred to the customers, in an amount that reflects the consideration we expect to be entitled to in exchange for transferring those goods. Other than standard product warranty provisions, our sales arrangements provide for no other post-shipment obligations. We periodically evaluate whether an allowance for sales returns is necessary. Historically, we have experienced minimal sales returns. If we believe there are material potential sales returns, we would provide the necessary provision against sales. 31 Revenues are recognized when control of the promised goods or services is transferred to the Company ’ s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. At the inception of each contract, performance obligations are identified and the total transaction price is allocated to the performance obligations. The Company ’ s contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative stand-alone selling price. The Company generally determines standalone selling prices based on the prices charged to customers. If an arrangement involves multiple deliverables, the items are analyzed to determine the separate units of accounting, whether the items have value on a stand-alone basis and whether there is objective and reliable evidence of their fair values. The deliverables and timing depend upon the customer ’ s needs. Because the sales are so highly customized, separate sales are too infrequent to establish vendor specific objective evidence (VSOE). As a result, we use the best estimate of selling prices for other contract features. For services performed, revenue is recognized when the products have been installed and services have been rendered. Revenues from maintenance support or managed services contracts are deferred and recognized as earned ratably over the service coverage periods. For equipment sales, revenue is generally recognized upon shipment of the product; however, there are certain instances where revenue is deferred and recognized upon delivery or customer acceptance of the product, as we legally retain the risk of loss on these transactions until such time. Costs related to revenues are recognized in the same period in which the specific revenues are recorded. Shipping and handling fees billed to customers are reported in revenue. Shipping and handling costs incurred by the Company are included in cost of goods sold. Estimates used in the recognition of revenues and cost of goods sold include, but are not limited to, estimates for product warranties, price allowances and product returns. Inventory Valuation Inventories are stated at the lower of cost (first-in, first-out) or net realizable value. Our policy is to evaluate all inventory quantities for amounts on-hand that are potentially in excess of estimated usage requirements, and to write down any excess quantities to estimated net realizable value. Inherent in the estimates of net realizable values are management ’ s estimates related to customer demand and the development of new technology, which could make our theater and digital media products obsolete, among other items. Income Taxes Prior to the effective date of the IPO, MiT was a limited liability company treated as a partnership for federal and state income tax purposes with all income tax liabilities and/or benefits of MiT being passed through to the members. As such, there is no recognition of federal or state income taxes provided for in the accompanying financial statements. Any uncertain tax position taken by the members is not an uncertain position of MiT. In accordance with the operating agreement of MiT, to the extent possible without impairing MiT ’ s ability to continue to conduct its business and activities, and in order to permit its members to pay taxes on the taxable income of MiT, MiT makes distributions to members in the amounts equal to the estimated tax liability of its members computed as if members paid income tax at the highest marginal federal and state rate applicable to an individual resident of Fountain Valley, CA. 32 Upon the effective date the IPO, the former LLC members are eligible to receive a final tax distribution consisting of income taxes payable on LLC earnings from January 1, 2019 through the effective date of the IPO (the “Final Tax Distribution”). Purchasers of shares of common stock in the IPO did not receive any portion of the Final Tax Distribution. On and after such date, we became fully subject to federal and state income taxes. We have agreed to pay, and to indemnify, defend and hold harmless the members of LLC from any taxes which may at any time be asserted with respect to the Share Exchange. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements required by this item are set forth following Item 16 of this Report and are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.