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Item 7. Management’s Discussion and Analysis

2023-09-27 compared with 2022-09-28 · 47 added, 45 removed, 174 unchanged (35% of the section changed)

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

We are a key 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.

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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.

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Factors affecting our performance

Effect of COVID-19 global pandemic .The COVID-19 pandemic has had an unprecedented impact on the world and the movie exhibition industry.

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.

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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 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.

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In April 2022, the Company entered into an Asset Purchase Agreement with QSC, LLC to purchase an aggregate of $1.5 million of inventory from QSC, LLC.

This asset purchase agreement was not within the Company's normal policy of acquiring small amounts of inventory, however the Company viewed this purchase as a strategic opportunity to expand its strategy of enabling under-served communities to enjoy the movie going experience and as such entered into this transaction.

This asset purchase agreement was not within the Company's normal policy of acquiring small amounts of inventory, however management viewed this purchase as a strategic opportunity to improve its gross margins and expand its strategy of enabling under-served communities to enjoy the movie going experience and as such entered into this transaction.

General and administrative expenses

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Net revenues increased 10.1% to $20.21 million for the year ended June 30, 2023 from $18.35 million for the prior fiscal year primarily due to the recovery from the impact of COVID-19 on the exhibition industry.

Backlog at June 30, 2022 was approximately $10.03 million, which represented orders currently planned to be shipped substantially by December 31, 2022.

Backlog at June 30, 2023 was approximately $12.02 million, which represented orders currently planned to be shipped substantially by January 31, 2024.

Backlog at June 30, 2022 was $10.03 million.

All open orders at June 30, 2021, except one for approximately $0.2 million due to customer deferral, were fulfilled in FY 2022.

All open orders at June 30, 2022, except one for approximately $0.2 million due to customer deferral, were fulfilled in the fiscal year 2023.

Year Ended June 30,

Gross profit increased 164.1% to $4.46 million for the year ended June 30, 2022 from $1.69 million for the prior fiscal year.

Gross profit increased 19.0% to $5.31 million or by $0.85 million for the year ended June 30, 2023 from $4.46 million for the prior fiscal year.

As a percentage of total revenues, gross margin increased to 26.3% for the year ended June 30, 2023 from 24.3% for the prior year.

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

In addition, the margin increase was affected by an increase in higher margin Caddy cupholder sales.

The increase in gross margin as a percentage of revenues was driven primarily by product mix, as higher margin parts and services revenues such as the QSC LLC purchases made up a larger percentage of total revenues.

Research and Development

Year Ended June 30,

The increase in research and development expense was primarily associated with the impact of COVID-19 on 2021.

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.

The increase in research and development expense was primarily associated with the impact of COVID-19 I in 2022.

We expect research and development expense and headcount 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,

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, during the year ended June 30, 2022 the Company incurred significant expenses associated with becoming a public company, such as increased legal, accounting and other regulatory costs.

2023 Selling, General and Administrative expense increased by a negligible $85,000 or 1% compared to 2022 as the Company controlled its spending in 2023.

Impairment of Long Term Assets

Year Ended June 30,

During the year ended June 30, 2023 the Company impaired Goodwill, Intangible and Note Receivable assets totaling $0.954 million.

Due to a decline in Caddy revenues in the year ended 2023, the customer relations Intangible and Goodwill assets incurred an impairment charge.

The Company incurred no impairment costs during the year ended June 30, 2022.

Interest and Other Expense/(Income)

Year Ended June 30,

The change in interest and other (expense)/income was primarily due to unrealized losses on marketable securities in the 2022 year.

The Company realized investment income including dividends and interest earned in 2023 compared to investment losses in 2022.

To reduce volatility in investments and assure stable returns, the Company liquidated its marketable securities portfolio in March 2023 and placed the proceeds into a savings account.

In 2022, the $(0.24) million unrealized loss was offset by $(0.71) million in PPP loan forgiveness for a net $(0.42) million.

Year Ended June 30,

Net loss was $(1.35) million for the year ended June 30, 2022 compared to a net loss of $(0.645) million for the prior year.

This increase in net loss was predominately driven by higher selling, general and administrative expenses that offset increases in gross margin.

In addition, net loss impacted by realized gain on investments of $0.459 million in 2021 versus and $0.242 million unrealized loss on investments in 2022, offset by a $0.197 million decrease in interest expense.

Net loss of $(1.80) million for the year ended June 30, 2023 compared to a net loss of $(1.35) million for the prior year increased by $(0.45) million.

This net loss increase was largely due to the 2023 $(0.95) million Impairment of Long Term Assets, stock option expense of $(0.27) million in 2023 offset by higher gross margin of $0.85 million.

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 believe that our existing sources of liquidity, including cash and operating cash flow, will be sufficient to meet our projected capital needs for the foreseeable future.

On July 7, 2021, the Company completed an initial public offering resulting in net proceeds of approximately $11.24 million.

Our cash balance at June 30, 2023 was approximately $6.62 million, as compared to $2.34 million at June 30, 2022.

Our short-term investments balance at June 30, 2022 was $4.36 million compared to $0 at June 30, 2021.

Our short-term investments balance at June 30, 2023 was $0.00 million compared to the $4.36 million short-term investment balance at June 30, 2022 as the Company sold its investments in March 2023.

In response to uncertainties associated with the COVID-19 pandemic, we took significant steps to preserve cash and remain in a strong competitive position for when the crisis subsided.

Throughout 2020 and 2021 the theatres reopened as soon as local restrictions and the status of the COVID-19 pandemic would allow.

Throughout 2020 to 2022 the theatres reopened as soon as local restrictions and the status of the COVID-19 pandemic would allow.

As of June 30, 2023, a large majority of domestic and international theatres were open.

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Cash Flows from Operating Activities

Net cash used in operating activities was $3.39 million for year ended June 30, 2022, due primarily to the operating loss combined with an increase in accounts receivable, an increase in inventory, offset by an increase in customer deposits.

Net cash used in operating activities was $1.7 million for the year ended June 30, 2021, due to the operating loss combined with, the negative cash impact of the gain on forgiveness of debt and net changes in working capital items of approximately $200,000.

Net cash provided by operating activities was $0.27 million for year ended June 30, 2023 including the operating loss of $(1.80) million.

Other sources of cash provided included accounts receivable, recovery of bad debts, non-cash impairment and amortization expense, non-cash option expense, and a decline in prepaid expense totaling $2.82 million.

Other uses of cash included a realized loss on investments, inventory increases to support the increased sales and related increases in accounts payable and lease liability totaling $(0.75) million.

Net cash used in operating activities was $3.39 million for the year ended June 30, 2022, due to the operating loss combined with, the non-cash gain on forgiveness of debt and net changes in working capital items of approximately $0.20 million.

The net change in working capital was primarily due to a decrease in accounts payable and prepaid and other, offset by a decrease in accounts receivable and an increase in customer deposits.

Cash Flows from Investing Activities

Net cash used in investing activities was $4.96 million for the year ended June 30, 2022.

This was comprised primarily of investments in marketable securities.

Net cash provided by investing activities was $548,000 for the year ended June 30, 2021.

This was comprised predominately of sales of marketable securities.

Net cash provided by investing activities was $(4.31) million for the year ended June 30, 2023.

This was comprised primarily of marketable securities investment sales.

Net cash used by investing activities was $(4.96) million for the year ended June 30, 2022 was comprised predominately of sales of marketable securities.

Cash Flows from Financing Activities

Net cash provided by financing activities was $9.41 million for the year ended June 30, 2022.

This increase was predominately due to the net proceeds of $11.2 million received from our IPO, offset by payments on Notes payable and our line of credit.

Net cash provided by financing activities of $1.36 million for the year ended June 30, 2021 was due to proceeds from our private placement of securities, plus proceeds received for the PPP loan, less payments on notes payable and our line of credit.

Net cash provided by financing activities was ($0.30) million for the year ended June 30, 2023 due the stock buyback program.

Net cash provided by financing activities of $9.41 million for the year ended June 30, 2022 was due to proceeds received from the IPO, less payments on notes payable and our line of credit.

Financial Instruments and Credit Risk Concentrations

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Total future lease payments

There were no other material contractual obligations other than inventory and property, plant and equipment purchases in the ordinary course of business.

There were no other material contractual obligations other than inventory, property and production and computer equipment purchases in the ordinary course of business.

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.

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 customers begin new theater builds or remodel projects.

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We believe that the relatively moderate rates of inflation in recent years have not had a significant impact on our net revenues or profitability.

During the year ended June 30, 2022, inflation increased to levels not seen since the 1980’s.

The Company has historically been able to offset any inflationary effects by either increasing prices or improving cost efficiencies.

During the fiscal year ended June 30, 2023, inflation increased to levels not seen since the 1980’s.

Historically, the Company has been able to offset any inflationary effects by either increasing prices or improving cost efficiencies and expects to do so in the future.

Recently Issued Accounting Pronouncements

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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.

Prior to the effective date of the IPO, the operating company 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 year ended June 30, 2021 financial statements.

Any uncertain tax position taken by the members is not an uncertain position of the Company.

In accordance with the operating agreement of MiT LLC, to the extent possible without impairing MiT LLC’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 LLC, MiT LLC made 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.

Upon the effective date the IPO, the former MiT LLC members were eligible to receive a final tax distribution consisting of income taxes payable on MiT 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 MiT LLC from any taxes which may at any time be asserted with respect to the Share Exchange.

The Company utilizes an asset and liability approach for financial accounting and reporting for income taxes.

The provisions 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 difference 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 difference are expected to reverse.

The effects 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 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.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 7. Management’s Discussion and Analysis