What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-05-16 · 52 added, 109 removed, 101 unchanged (61% of the section changed)

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You should read this Report and the documents that we have filed as exhibits, completely and with the understanding that our actual future results may be materially different from what we expect.

Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which it is made.

Any forward-looking statement made by us in this Report speaks only as of the date on which it is made.

Except as required by law, we disclaim any obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward- looking statements, even if new information becomes available in the future.

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The following discussion and analysis should be read in conjunction with the accompanying condensed 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.

We are a digital cinema company that 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.

Moving iMage Technologies, LLC’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 LLC 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 LLC 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”), MiT LLC designs, develops and manufactures innovative products for the entertainment, cinema, grocery, worship, restaurant, sports and restroom industries.

On July 7, 2021, we entered into an Exchange Agreement (the “Exchange Agreement”) whereby the owners of Moving iMage Technologies, LLC, a Delaware limited liability company (“MiT LLC”), assigned and transferred to MiT Inc.

their units of MiT LLC, in exchange for an aggregate of 2,350,000 shares of Common Stock of MiT Inc.

(see Share Exchange in Note 1 of the Condensed Consolidated Financial Statements).

The table below summarizes the 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.

Consideration

Existing stockholders

New investors in the initial public offering

As a result of the Share Exchange, MiT LLC became a wholly-owned subsidiary of MiT Inc.

and is the entity where the Company’s business operations are located.

Because the Share Exchange occurred subsequent to the Company’s fiscal year ended June 30, 2021, the historical financial statements presented in this Quarterly Report on Form 10-Q include information derived from the audited consolidated financial statements of MiT LLC at June 30, 2021 and the unaudited results of operations and cash flows of MiT LLC for the three and nine months ended March 31, 2021 which have been retroactively restated to reflect the consolidation of MiT Inc.

and MiT LLC in connection with the exchange agreement.

See Note 1 of the condensed consolidated financial statements.

We are a leading provider of technology, products, and services to movie theater operators and sports and entertainment venues.

1) We provide a set of valuable services to movie theater operators and other critical screening and viewing rooms.

These services include overall project management, which can encompass a wide range of design, integration, installation, and procurement services for new auditorium builds, refurbishments, or upgrades to existing facilities.

2) We design and manufacture a set of proprietary products that are sold either as part of our project management services or a la carte.

Examples of these products include our ADA-compliant accessibility products and our Caddy brand, a leading provider of proprietary cup holders, trays, and other products sold into our strategic markets of motion picture exhibition, entertainment, and sports venues as well as other non-strategic markets.

We also resell third-party technologies, including but not limited to items such as screens, projectors, and servers.

3) We resell third-party products as part of our project management services or a la carte.

These include technology products such as screens, projectors, servers, and FF&E (furniture, fixtures, and equipment).

4) Finally, we have a set of recently introduced products that we believe have the potential to be disruptive to the movie theater, entertainment and sports venue industries.

For example, our operations enhancement and theater management solution include a software-as-a-service (SaaS) platform combined with other technologies that allow theater operators to improve their quality control.

We have also developed a translator product and service that will enable moviegoers to watch a movie in any language that the film is available in, all in the same auditorium through a set of augmented reality glasses.

Another example is a proprietary mobile cart we’ve developed to enable eSports and gaming in movie-theater auditoriums.

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.

Effect of COVID-19 global 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.

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 nine months ended March 31, 2022 and 2021, were adversely affected.

The ultimate impact of the COVID-19 pandemic on our business and results of operations beyond fiscal 2022 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.

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.

During the second half of the 2021 calendar year, several of the larger theater chains have reopened 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 reopening’s will continue to be done with limited occupancy and specific procedures, products, and technologies required to be implemented to protect the safety and health of returning patrons and employees.

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 2021 the theatres reopened as soon as local restrictions and the status of the COVID-19 pandemic would allow.

As of September 30, 2022, 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 our current estimates of recovery, we believe we have, and will generate, sufficient cash to sustain operations.

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.

Investment in growth .

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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.

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 — we expect this system will have higher margins than a substantial number of existing products we offer.

In addition, we expect our offerings of Direct View LED screens to also carry significantly higher margins.

Fluctuations in Revenues and Earnings .

Both the sales cycle and the contract fulfillment cycle are 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 and its ultimate fulfillment.

Critical Accounting Policies and Estimates.

We discuss the material accounting policies that are critical in making the estimates and judgments in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, under the caption “Management’s Discussion and Analysis—Critical Accounting Policies and Estimates”.

There has been no material change in critical accounting policies or estimates during the period covered by this report.

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.

The principal factors that have affected or could affect our net sales from period to period are:

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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 inventory at any given time to meet demands, and relying instead on a strategy of manufacturing or acquiring products based on orders placed by our customers.

We mitigate the risk of inventory obsolescence by stocking relatively small amounts of inventory at any given time, except for periodic strategic purchases, and relying instead on a strategy of manufacturing or acquiring products based on orders placed by our customers.

General and administrative expenses

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We do not engage in any long-term research and development contracts, and all research and development costs are expensed as incurred.

Recent accounting pronouncements

For information on recent accounting pronouncements and impacts, see Note 1 to the unaudited condensed consolidated financial statements.

Results of Operations

Three months ended March 31, 2022 compared to the three months ended March 31, 2021

Three Months Ended March 31,

Net sales increased 241.2% to $5.835 million for the three months ended March 31, 2022 from $1.710 million for the three months ended March 31, 2021 primarily due to the recovery from the impact of COVID-19 on the exhibition industry.

Three Months Ended March 31,

Gross profit increased 228.6% to $1.367 million for the three months ended March 31, 2022 from $.416 million for the three months ended March 31, 2021.

As a percentage of total revenues, gross profit decreased to 23.4% from 24.3% due to product mix.

Three months ended September 30, 2022 compared to the three months ended September 30, 2021

Three Months Ended September 30,

Net sales increased 68.5% to $5.852 million for the three months ended September 30, 2022 from $3.474 million for the three months ended September 30, 2021 primarily due to an increase in projector sales related to a technological upgrade cycle and the inclusion in 2022 of the new QSC product line.

Three Months Ended September 30,

Gross profit increased 115.9% to $1.559 million for the three months ended September 30, 2022 from $0.722 million for the three months ended September 30, 2021.

As a percentage of total revenues, gross profit increased to 26.6% from 20.8% due to product mix and an increase in post COVID-19 inventory reserve of $20,000 in 2021.

Research and Development

Three Months Ended March 31,

Increase in research and development expense was primarily associated with the impact of COVID-19 in the 2021 period.

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.

Three Months Ended September 30,

The increase in research and development expense was primarily associated with increased activity in the 2022 period.

We expected 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

Three Months Ended March 31,

The increase in selling, general and administrative expense was due primarily to the impact of COVID-19 in the 2020 period as the Company instituted cost containment measures, such as headcount reduction, executive pay reduction and cost avoidance.

In addition, the Company incurred significant expenses associated with becoming a public company, such as increased legal, accounting and other regulatory costs.

Three Months Ended September 30,

The increase in selling, general and administrative expense was due primarily to an increase in payroll and other ofther compensation expense in the 2022 period.

Other (Income) Expense

Three Months Ended March 31,

The change in other (income) expense was primarily due to gain on extinguishment of PPP debt.

Three Months Ended March 31,

Net income was $.593 million for the three months ended March 31, 2022 compared to a net loss of $(.164) million for the three months ended March 31, 2021.

This increase in income was driven by a $.698 million gain on the extinguishment due to forgiveness of the second PPP loan, offset by an increase in public company related expenses and other selling, general and operating expenses.

Nine months ended March 31, 2022 compared to nine months ended March 31, 2021

Nine Months Ended March 31,

Net sales increased 150.7% to $12.728 million for the nine months ended March 31, 2022 from $5.076 million for the nine months ended March 31, 2021 primarily due to the recovery from the impact of COVID-19 on the exhibition industry.

Nine Months Ended March 31,

Gross profit increased 131.4% to $2.985 million for the nine months ended March 31, 2022 from $.1.290 million for the nine months ended March 31, 2021.

As a percentage of total sales, gross profit declined to 23.5% for the nine months ended March 31, 2022 from 25.4% for the nine months ended March 31, 2021.

The decrease in gross margin as a percentage of revenues was driven primarily by product mix, as higher margin parts and services revenue made up a smaller percentage of total revenues.

In addition, the margin decrease was affected by a decrease in higher margin Caddy cupholder sales.

Research and Development

Nine Months Ended March 31,

Increase in research and development expense was primarily associated with the impact of COVID-19 in the 2021 period.

Selling, General and Administrative Expense

Nine Months Ended December 31,

The increase in selling, general and administrative expense was due primarily to the impact of COVID-19 in the prior period as the Company instituted cost containment measures, such as headcount reduction, executive pay reduction and cost avoidance.

Additionally, the Company incurred significant expenses associated with becoming a public company, such as increased legal, accounting and other regulatory costs.

Interest and Other (Income) Expense

Nine Months Ended December 31,

Increase due to unrealized gain on extinguishment of the second PPP loan and lower interest expense, offset by a decrease in in unrealized short term investment gains.

Nine Months Ended March 31,

Net loss was $(.626) million for the nine months ended March 31, 2022 compared to a net loss of $(.691) million for the nine months ended March 31, 2021.

This decrease in net loss was driven by increase in sales, PPP loan forgiveness, offset by increase in public company related expenses and other selling, general and operating expenses.

Three Months Ended September 30,

The change in other (income) expense was primarily due to an unrealized loss on marketable securities, offset by a reduction in interest income.

Three Months Ended September 30,

Net loss was $95,000 for the three months ended September 30, 2022 compared to a net loss of $0.577 million for the three months ended September 30, 2021.

This decrease in net loss was driven by an increase in revenue and gross profit percentage, offset by an increase in selling, general and operating expenses.

Liquidity and Capital Resources

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On July 7, 2021, the Company completed an initial public offering resulting in net proceeds of approximately $12.36 million.

Cash balance at March 31, 2022 was approximately $6.337 million, as compared to $1.270 million at June 30, 2021.

Short term investments balance at March 31, 2022 was $3.082 million compared to $0 at June 30, 2021.

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.

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 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 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 are 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.

Cash balance at September 30, 2022 was approximately $2.294 million, as compared to $2.340 million at June 30, 2022.

Investments in marketable securities at September 30, 2022 was $4.549 million compared to $4.688 at June 30, 2022.

Cash Flows from Operating Activities

Net cash used by operating activities was $.916 million for the nine months ended March 31, 2022, primarily due to net loss of $.626 million offset by net changes in working capital items of $(.398) million.

The net change in working capital was primarily due to an increase in inventory of $1.451 million and accounts receivable of $1.02 million, offset by an increase in customer deposits of $2.195 million.

Net cash used in operating activities was $1.874 million for the nine months ended March 31, 2021, due to our net loss of $.691 million and net changes in working capital items of $.908 million.

Net cash used by operating activities was $20,000 for the three months ended September 30, 2022, primarily due to net loss of $95,000 offset by non-cash expenses of $187,000 and net negative changes in working capital items of $111,000.

The net change in working capital was primarily due to an increase in accounts payable of $1.597 million and a decrease in customer deposits of $1.312 million.

Net cash used in operating activities was $0.769 million for the three months ended September 30, 2021, due to our net loss of $0.577 million and net changes in working capital items of $0.192 million.

Cash Flows from Investing Activities

Net cash used in investing activities was $3.430 million for the nine months ended March 31, 2022 primarily due to the investment in marketable securities.

Net cash provided by investing activities was $.550 million for the nine months ended March 31, 2021, due to the sale of investments.

Net cash used in investing activities was $26,000 for the three months ended September 30, 2022 primarily due to the net investments in marketable securities.

There was no cash provided by or used in investing activities for the three months ended September 30, 2021.

Cash Flows from Financing Activities

Net cash provided by financing activities was $9.413 million for the nine months ended March 31, 2022.

The increase relates to $11.244 million of IPO net proceeds offset by net repayments of $1.831 million of debt.

Net cash provided by financing activities was $1.363 million for the nine months ended March 31, 2021, predominately the result of proceeds received from the private placement of $1.334 million and Paycheck Protection Program of $.698 million, respectively.

There was no cash provided by or used in financing activities for the three months ended September 30, 2022.

Net cash provided by financing activities was $10.529 million for the three months ended September 30, 2021, predominately the result of $12.360 million received from the IPO, offset by payments on the line of credit and notes payable.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis