Moving iMage Technologies(MITQ) - 2023 Q4 - Annual Report

PART I Business MiT offers project management, proprietary products, third-party equipment, and new solutions for the motion picture exhibition industry - The company offers project management, proprietary product manufacturing, third-party equipment resale, and new solution development like multi-language translators and eSports gaming carts[17][23] - Industry recovery, with the domestic box office reaching $7.4 billion in 2022, drives company growth, capitalizing on trends like luxury seating and laser projector upgrades[18][22][27] - New initiatives include the MiTranslator system for multi-language captioning and installations of the three leading Direct View LED cinema systems[41][42] - Sales backlog increased to $12.02 million at June 30, 2023, from $10.03 million in 2022, with substantial shipment expected by January 31, 2024[52] - Top ten customers accounted for 37% of net revenues in fiscal 2023, a decrease from 48% in fiscal 2022, reducing customer concentration[47] Risk Factors The company faces risks from the recovering movie exhibition industry, supply chain dependencies, internal control weaknesses, and concentrated insider ownership - Business sensitivity to movie exhibition industry recovery, evolving theatrical release windows, and streaming competition poses significant risks[60][61] - Revenue dependence on third-party OEMs like NEC, Barco, and Dolby creates risks from relationship failures or supply chain disruptions[65][66] - Material weaknesses in internal control over financial reporting include issues with the financial closing process, formal policies, segregation of duties, and journal entry review[122][124] - Sales backlog of $12.02 million at June 30, 2023, carries conversion risk due to potential customer delays or cancellations[83] - Directors and executive officers beneficially owned approximately 31.6% of the company's stock as of September 22, 2023, indicating concentrated influence[117] Unresolved Staff Comments The company reports no unresolved staff comments - No unresolved staff comments were reported[134] Properties The company leases all its facilities, including corporate headquarters and a warehouse in Fountain Valley, California, with leases expiring in 2024 - The company leases its 28,000 sq. ft. corporate headquarters and a 13,000 sq. ft. warehouse in Fountain Valley, CA, with both operating leases expiring in 2024[135] Legal Proceedings The company is not currently a party to any material pending legal proceedings - No material pending legal proceedings were reported by the company[137] Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[138] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NYSE American, has never paid dividends, and re-authorized a stock repurchase program in March 2023 - Common Stock is listed on the NYSE American under the symbol MITQ[140] - The company has never paid cash dividends and does not intend to in the foreseeable future[141] - A stock repurchase program of up to $1 million was re-authorized on March 23, 2023, resulting in 272,620 shares repurchased at an average price of $1.111 per share in fiscal 2023[142] Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations Net sales increased by 10.1% to $20.21 million in fiscal 2023, with improved gross profit and margin, despite a $0.95 million impairment charge leading to a $1.80 million net loss, while liquidity improved to $6.62 million cash Results of Operations Fiscal 2023 saw 10.1% net revenue growth to $20.21 million and 19.0% gross profit increase to $5.31 million, but a $0.95 million impairment charge widened the net loss to $1.80 million Fiscal Year 2023 vs. 2022 Financial Performance (in thousands) | Metric | FY 2023 | FY 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $20,207 | $18,351 | 10.1% | | Gross Profit | $5,310 | $4,461 | 19.0% | | Gross Margin | 26.3% | 24.3% | +2.0 p.p. | | Operating Expenses | $7,285 | $6,223 | 17.1% | | Net Loss | $(1,798) | $(1,345) | 33.7% | - Gross margin improvement was primarily driven by a favorable product mix, with higher-margin parts and services contributing a larger percentage of total revenues[165] - A $954,000 impairment charge on Goodwill, Intangible, and Note Receivable assets was recorded in fiscal 2023 due to declining Caddy revenues, with no comparable charge in 2022[171] - The net loss increase was largely due to the $0.95 million impairment charge and $0.27 million in stock option expense, partially offset by an $0.85 million increase in gross margin[173] Liquidity and Capital Resources Liquidity significantly improved in fiscal 2023, with cash increasing to $6.62 million from $2.34 million, driven by positive cash flow from operations and marketable securities liquidation Cash and Liquidity (in millions) | Metric | June 30, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Cash | $6.62 | $2.34 | | Short-term Investments | $0.00 | $4.36 | Cash Flow Summary (in millions) | Cash Flow Source | FY 2023 | FY 2022 | | :--- | :--- | :--- | | From Operating Activities | $0.27 | $(3.39) | | From Investing Activities | $4.31 | $(4.96) | | From Financing Activities | $(0.30) | $9.41 | - The company liquidated its marketable securities portfolio in March 2023 to reduce volatility and ensure stable returns, transferring proceeds to a savings account[172][174] Critical Accounting Policies and Estimates Critical accounting policies involve significant judgment, including Revenue Recognition (ASC 606), Inventory Valuation (lower of cost or net realizable value), and Income Taxes (deferred tax asset realizability) - Revenue Recognition follows ASC 606, recognizing revenue upon transfer of control, with allocation for multiple obligations based on standalone selling prices[188][189] - Inventory Valuation is at the lower of cost (FIFO) or net realizable value, with management estimates for obsolescence and write-downs[195] - Income Taxes use an asset and liability approach, with a valuation allowance recorded against deferred tax assets if realization is unlikely[196] Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to the company - This item is not applicable to the company[197] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal years 2023 and 2022, showing $13.33 million in total assets and a $1.80 million net loss for 2023 - Haskell & White LLP, the independent registered public accounting firm, provided an unqualified opinion on the consolidated financial statements[284] Consolidated Balance Sheet Highlights (in thousands) | | June 30, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Total Current Assets | $12,391 | $13,362 | | Total Assets | $13,330 | $14,851 | | Total Current Liabilities | $5,600 | $5,414 | | Total Liabilities | $5,751 | $5,436 | | Total Stockholders' Equity | $7,579 | $9,415 | Consolidated Statement of Operations Highlights (in thousands) | | Year Ended June 30, 2023 | Year Ended June 30, 2022 | | :--- | :--- | :--- | | Net Sales | $20,207 | $18,351 | | Gross Profit | $5,310 | $4,461 | | Operating Loss | $(1,975) | $(1,762) | | Net Loss | $(1,798) | $(1,345) | | Net Loss Per Share | $(0.16) | $(0.13) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on accounting and financial disclosure - No disagreements with accountants on accounting and financial disclosure were reported[199] Controls and Procedures Management concluded disclosure controls and procedures were ineffective as of June 30, 2023, due to material weaknesses in internal control over financial reporting, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of June 30, 2023[200] - Identified material weaknesses in internal controls include the financial reporting process, lack of formal accounting policies, segregation of duties, and journal entry review[205] - A remediation plan has been initiated, including hiring a new CFO and engaging external consultants to address identified weaknesses[207] - As an emerging growth company, an attestation report on internal control effectiveness from the independent registered public accounting firm is not required[209] Other Information The company reports no other information - No other information was reported by the company[210] Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - This item is not applicable to the company[211] PART III Directors, Executive Officers and Corporate Governance This section details biographical information for directors and executive officers, board committee structure, audit committee financial expert designation, and notes delinquent Section 16(a) filings - Executive officers and directors include Phil Rafnson (President, CEO, Chairman), Jose Delgado (EVP, Sales), Bevan Wright (EVP, Operations), and William Greene (CFO)[215][216][217][218] - The board has Audit, Compensation, and Nominating committees, with independent directors John C. Stiska, Katherine D. Crothall, and Scott Lloyd Anderson serving on all three[231][232][235][237] - John C. Stiska is designated as the audit committee financial expert[232] - Delinquent Section 16(a) filings were noted for CFO William Greene and directors John C. Stiska, Katherine D. Crothall, and Scott Lloyd Anderson during fiscal year 2023[239] Executive Compensation This section details Named Executive Officer and non-employee director compensation, including CEO Phil Rafnson's $176,600 total compensation in fiscal 2023 and the reissuance of director stock options at a lower exercise price Named Executive Officer Compensation (Fiscal Year 2023) | Name and Principal Position | Salary ($) | Bonus ($) | Total ($) | | :--- | :--- | :--- | :--- | | Philip Rafnson, President and CEO | 176,600 | — | 176,600 | | Jose Delgado, EVP, Sales and Marketing | 233,730 | 23,373 | 257,103 | | Bevan Wright, EVP, Operations | 233,730 | 23,373 | 257,103 | Non-Employee Director Compensation (Fiscal Year 2023) | Name | Fees Paid in Cash ($) | Option Awards ($) | Stock Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Katherine D. Crothall, Ph.D. | 8,400 | 55,000 | 11,000 | 74,400 | | John C. Stiska | 30,800 | 55,000 | 11,000 | 96,800 | | Scott Anderson | 79,376 | 55,000 | 11,000 | 145,376 | - On May 26, 2023, the Board cancelled 150,000 director options with a $3.00 exercise price and granted 150,000 new options with a $1.10 exercise price, vesting immediately[259][389] - The company does not have employment, severance, or change-in-control agreements with its named executive officers[244] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of September 22, 2023, executive officers and directors as a group beneficially owned 31.6% of common stock, with CEO Phil Rafnson holding 19.4% Beneficial Ownership of Executive Officers and Directors | Name of Beneficial Owner | Shares Beneficially Owned | Percentage (%) | | :--- | :--- | :--- | | Phil Rafnson | 2,074,828 | 19.4% | | Bevan Wright | 600,630 | 5.6% | | Jose Delgado | 511,503 | 4.8% | | All executive officers, directors as a group (7 persons) | 3,453,628 | 31.6% | Certain Relationships and Related Transactions, and Director Independence Related party transactions include a $50,000 payment to CEO Phil Rafnson for debt guarantees, while the Board determined three directors are independent - In July 2021, the company made a discretionary $50,000 payment to CEO Phil Rafnson for his personal guarantees on debt financing[265] - The company has entered into indemnification agreements with each of its directors and executive officers[267] - The Board of Directors determined that Katherine D. Crothall, Ph.D., John C. Stiska, and Scott Lloyd Anderson are independent directors under NYSE American listing standards[272] Principal Accounting Fees and Services The company engaged Haskell & White LLP as its new independent accounting firm in April 2022, with total auditor fees of $240,020 in fiscal 2023 and $336,943 in fiscal 2022 Auditor Fees (in USD) | | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Audit Fees - CohnReznick | $39,375 | $301,943 | | Audit Fees - H&W | $200,645 | $35,000 | | Total Fees | $240,020 | $336,943 | - The company engaged Haskell & White LLP as its independent registered public accounting firm on April 21, 2022[274] PART IV Exhibits, Financial Statement Schedules Financial statements are included in Item 8, schedules are omitted, and exhibits are incorporated by reference from the Exhibit Index - Financial statements are included in Item 8 of this report[277] - Financial statement schedules are omitted as not applicable, immaterial, or included in consolidated financial statements or notes[278] - Exhibits are incorporated by reference from the Exhibit Index[279] Form 10-K Summary No summary is provided under this item - No summary is provided under this item[280]