UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 31, 2022

or

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

For the transition period from                                    to                                   

Commission file number: 001-40511

Moving iMage Technologies, Inc.

(Exact name of Registrant as specified in its charter)

Delaware	85-1836381
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

17760 Newhope Street,
Fountain Valley, California	92708
(Address of principal executive offices)	(Zip Code)

(714) 751-7998

(Registrant’s telephone number, including area code)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.00001 par value	MITQ	NYSE American

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

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

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

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☑	Smaller reporting company ☑
	Emerging growth company ☑

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

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

As of February 13, 2023, there were 10,958,398 shares of the registrant’s common stock, par value $0.00001 per share, outstanding.

MOVING iMAGE TECHNOLOGIES, INC.

TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION
ITEM 1.	Financial Statements	F-3
	Condensed Consolidated Balance Sheets as of December 31, 2022 (unaudited) and June 30, 2022	F-3
	Condensed Consolidated Statement of Operations (unaudited) for the three and six months ended December 31, 2022 and 2021	F-4
	Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit) (unaudited) for the three and six months ended December 31, 2022	F-5
	Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit) (unaudited) for the three and six months ended December 31, 2021	F-5
	Condensed Consolidated Statement of Cash Flows (unaudited) for the six months ended December 31, 2022 and 2021	F-6
	Notes to Unaudited Condensed Consolidated Financial Statements	F-7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	31
ITEM 4.	Controls and Procedures	31
PART II - OTHER INFORMATION		32
ITEM 1.	Legal Proceedings	32
ITEM 1A.	Risk Factors	32
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
ITEM 3.	Defaults Upon Senior Securities	32
ITEM 4.	Mine Safety Disclosures	32
ITEM 5.	Other Information	32
ITEM 6.	Exhibits	32
SIGNATURES		33

F-2

PART I – FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

MOVING IMAGE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands except share and per share amounts)

	December 31,		June 30,
	2022		2022
	(unaudited)			(Note 1)
Assets
Current Assets:
Cash and cash equivalents	$	1,575	$	2,340
Marketable securities–current		4,421		4,363
Accounts receivable, net		1,419		1,762
Inventories, net		4,727		4,033
Prepaid expenses and other		267		864
Total Current Assets		12,409		13,362
Marketable securities–non–current		319		325
Right-of-use asset		543		—
Property and equipment, net		23		22
Intangibles, net		791		839
Goodwill		287		287
Other assets		16		16
Total Assets	$	14,388	$	14,851
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	1,627	$	1,583
Accrued expenses		377		655
Customer deposits		2,245		3,158
Lease liability–current		265		—
Unearned warranty revenue		59		18
Total Current Liabilities		4,573		5,414
Lease liability–non-current		296		—
Deferred rent		—		22
Total Liabilities		4,869		5,436
Stockholders’ Equity
Common stock, $0.00001 par value, 100,000,000 shares authorized, 10,958,398 and 10,828,398 shares issued and outstanding at December 31, 2022 and June 30, 2022, respectively		—		—
Additional paid-in capital		12,653		12,500
Accumulated deficit		(3,134)		(3,085)
Total Stockholders’ Equity		9,519		9,415
Total Liabilities and Stockholders’ Equity	$	14,388	$	14,851

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

F-3

MOVING IMAGE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except share and per share amounts)

(unaudited)

	Three Months		Three Months
	Ended		Ended		Six Months Ended		Six Months Ended
	December 31,		December 31,		December 31,		December 31,
	2022		2021		2022		2021
Net sales	$	4,843	$	3,419	$	10,695	$	6,893
Cost of goods sold		3,531		2,523		7,824		5,275
Gross profit		1,312		896		2,871		1,618
Operating expenses:
Research and development		61		65		127		119
Selling and marketing		594		571		1,204		1,115
General and administrative		795		902		1,630		1,565
Total operating expenses		1,450		1,538		2,961		2,799
Operating income (loss)		(138)		(642)		(90)		(1,181)
Other (income) expenses:
Unrealized (gain) loss on investments		(269)		—		(129)		—
Realized (gain) loss on investments		110		—		133		—
Interest and other income		(25)		—		(45)		—
Interest expense		—		2		—		40
Total other (income) expense		(184)		2		(41)		40
Net income (loss)	$	46	$	(644)	$	(49)	$	(1,221)
Weighted average shares outstanding: basic and diluted		10,958,398		10,636,278		10,943,561		10,445,482
Net income (loss) per common share basic and diluted	$	0.00	$	(0.06)	$	(0.00)	$	(0.12)

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

F-4

MOVING IMAGE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(unaudited)

(in thousands except for share amounts)

Three months and six months ended December 31, 2022

						Retained Earnings
	Common Stock			Additional Paid-In		(Accumulated
	Shares	Amount		Capital		Deficit)		Total
Balance as of June 30, 2022	10,828,398	$	—	$	12,500	$	(3,085)	$	9,415
Issuance of stock to employees	130,000		—		153		—		153
Net loss	—		—		—		(95)		(95)
Balance as of September 30, 2022	10,958,398	$	—	$	12,653	$	(3,180)	$	9,473
Net income	—		—		—		46		46
Balance as of December 31, 2022	10,958,398	$	—	$	12,653	$	(3,134)	$	9,519

Three months and six months ended December 31, 2021

						Retained Earnings
	Common Stock			Additional Paid-In		(Accumulated
	Shares	Amount		Capital		Deficit)		Total
Balance as of June 30, 2021	5,666,667	$	—	$	1,011	$	(1,740)	$	(729)
Shares of common stock issued for cash, net of issuance costs	4,830,000		—		11,244		—		11,244
Cashless exercise of warrants	139,611		—		—		—		—
Grant of options for services	—		—		56		—		56
Net loss	—		—		—		(577)		(577)
Balance as of September 30, 2021	10,636,278	$	—	$	12,311	$	(2,317)	$	9,994
Grant of options for services	—		—		62		—		62
Net loss	—		—		—		(644)		(644)
Balance as of December 31, 2021	10,636,278	$	—	$	12,373	$	(2,961)	$	9,412

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

F-5

MOVING IMAGE TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended		Six Months Ended
	December 31,		December 31,
	2022		2021
Cash flows from operating activities:
Net loss	$	(49)	$	(1,221)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for (reversal of) doubtful accounts		(17)		(40)
Depreciation expense		3		13
Amortization expense		48		48
Unrealized gain on investments		(129)		—
Realized loss on investments		133		—
Cash expended in excess of rent expense		(4)		—
Stock compensation expense		—		118
Changes in operating assets and liabilities
Accounts receivable		360		(164)
Inventories		(694)		(1,964)
Prepaid expenses and other		597		(653)
Accounts payable		44		(703)
Accrued expenses		(125)		(302)
Unearned warranty revenue		41		(2)
Customer deposits		(913)		2,025
Net cash used in operating activities		(705)		(2,845)
Cash flows from investing activities
Sales of marketable securities		4,088		—
Purchase of marketable securities		(4,144)		—
Purchases of property, plant and equipment		(4)		(2)
Net cash used in investing activities		(60)		(2)
Cash flows from financing activities
Net Proceeds from initial public offering		—		12,360
Payments on line of credit		—		(590)
Payments on notes payable		—		(1,241)
Net cash provided by financing activities		—		10,529
Net increase (decrease) in cash and cash equivalents		(765)		7,682
Cash and cash equivalents, beginning of the period		2,340		1,270
Cash and cash equivalents, end of the period	$	1,575	$	8,952
Non-cash investing and financing activities:
Reclassification of IPO related costs from other assets to equity	$	—	$	1,116
Accrued expenses settled by issuance of common stock	$	153	$	—
Right-of-use asset recorded upon adoption of ASC 842	$	681	$	—
Cash paid during the period:
Interest	$	—	$	38

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

F-6

MOVING IMAGE TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

Share Exchange:

In June 2020, MiT LLC members created Moving iMage Technologies, Inc. (“MIT Inc.”) to facilitate the Company’s initial public offering (“IPO”). Upon formation of MiT, Inc., 2,000,000 shares of MiT, Inc. common stock were issued to members of MiT LLC. On July 7, 2021, MiT LLC and MiT Inc. entered into an exchange agreement (“Exchange Agreement”) whereby the members of MiT LLC exchanged their membership interest for 2,350,000 shares of common stock in MiT Inc. As a result of the Exchange Agreement, the members of MiT LLC owned approximately 79% or 4,452,334 of the outstanding common stock of MiT Inc. As a result, MiT LLC (the entity where the Company conducts its business) became a wholly-owned subsidiary of MiT Inc. (the SEC registrant).

The transaction was accounted for as a merger of entities under common ownership in accordance with generally accepted accounting principles in the United States of America (“GAAP”). This determination was primarily based on the facts that, immediately before and after the transaction: (i) MiT LLC owners owned a substantial majority of the voting rights in the combined company, (ii) MiT LLC designated a majority of the members of the initial board of directors of the combined company, and (iii) MiT LLC’s senior management holds all key positions in the senior management of the combined company.

Initial Public Offering: On July 12, 2021, the Company closed its initial public offering ("IPO") and issued 4,830,000 shares of its common stock at a price of $3.00 per share for net proceeds of approximately $12,360,000 after deducting underwriting discounts, commissions, and other expenses of approximately $2,130,000. Upon the completion of its IPO, the Company reclassified deferred IPO related costs of approximately $1,116,000 from other assets to additional paid-in capital. In connection with the Company’s IPO, the underwriters received warrants to acquire 241,500 shares of the Company’s common stock at $3.75 per share.

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

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

F-7

MOVING IMAGE TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Throughout 2020 and 2021 the theatres reopened as soon as local restrictions and the status of the COVID-19 pandemic would allow. As of December 31, 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 the its current estimates of recovery, the Company believes it has, and will generate, sufficient cash to sustain operations for a period of 12 months from the issuance of these financial statements. Nonetheless, the COVID-19 pandemic has had, and continues to have, adverse effects on the Company’s business, results of operations, cash flows and financial condition.

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

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

Unaudited Interim Condensed Consolidated Financial Statements: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP. However, in the opinion of the management of the Company, all adjustments of a normal recurring nature necessary for a fair presentation of the financial position and operating results have been included in these statements. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended June 30, 2022, and with the disclosures and risk factors presented therein. The June 30, 2022 condensed consolidated balance sheet has been derived from the audited consolidated financial statements. Operating results for the three months and six months ended December 31, 2022 are not necessarily indicative of the results that may be expected for any subsequent quarters or for the year ending June 30, 2023.

Segment Reporting: An operating segment, in part, is a component of an enterprise whose operating results are regularly reviewed by the chief operating decision maker (the “CODM”) to make decisions about resources to be allocated to the segment and assess its performance. Operating segments may be aggregated only to a limited extent. The Company’s CODM reviews financial information presented on a consolidated basis, accompanied by disaggregated information about revenues for purposes of making operating decisions and assessing financial performance. The Company has determined that it has a single operating and reportable segment.

Measurement of Fair Values: The Company’s accounting policies and disclosures require the measurement of fair values for both financial and non-financial assets and liabilities on either a recurring or nonrecurring basis. When measuring the fair value of an asset or a liability, the Company uses observable market data to the extent such information is available. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

— Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

— Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).

— Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

F-8

MOVING IMAGE TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Following is the fair value leveling for investment securities that are measured at fair value on a recurring basis as of December 31, 2022 (in thousands):

	December 31, 2022
	Level 1		Level 2		Level 3		Total
Equity Securities	$	843	$	—	$	—	$	843
State and Municipal Debt Securities		880		—		—		880
Fixed Income Funds		2,715		—		—		2,715
Alternative Funds		—		256		—		256
Real Estate Funds		—		46		—		46
Subtotal								4,740
Less Long-term								(319)
Net Current							$	4,421

Following is the fair value leveling for investment securities that are measured at fair value on a recurring basis as of June 30, 2022 (in thousands):

	June 30, 2022
	Level 1		Level 2		Level 3		Total
Equity Securities	$	764	$	—	$	—	$	764
State and Municipal Debt Securities		889		—		—		889
Fixed Income Funds		2,687		—		—		2,687
Alternative Funds		—		300		—		300
Real Estate Funds		—		48		—		48
Subtotal								4,688
Less Long-term								(325)
Net Current							$	4,363

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

Assets and Liabilities Not Measured at Fair Value on a Recurring Basis - In addition to assets and liabilities that are measured at fair value on a recurring basis, we also measure certain assets and liabilities at fair value on a nonrecurring basis. Our non-financial assets, including goodwill, intangible assets and property, plant and equipment, are measured at fair value when there is an indication of impairment and the carrying amount exceeds the asset’s projected undiscounted cash flows. These assets are recorded at fair value only when an impairment charge is recognized. There were no impairments recognized for the quarter ended December 31, 2022 or the year ended June 30, 2022.

Deferred Offering Costs: The Company capitalizes certain legal, accounting and other third-party fees that were directly associated with its IPO and other financings as deferred offering costs (non-current) until such financings are consummated.

As of June 30, 2021, $1,116,000 of deferred offering costs were capitalized in other assets. After completion of the IPO in July 2021, these costs were recorded in the condensed consolidated statements of changes in stockholders’ equity (deficit) as a reduction of proceeds received from the offering.

F-9

MOVING IMAGE TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

Accounts Receivable: Accounts receivable are carried at original invoice amount less allowance for bad debts. Management determines the allowance for bad debts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Accounts receivable are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received. Accounts receivable are considered to be past due if any portion of the receivable balance is outstanding for more than 90 days past the customer’s granted terms. The Company does not charge interest on past due balances or require collateral on its accounts receivable. As of December 31, 2022 and June 30, 2022 the allowance for bad debts is approximately $121,000 and $138,000, respectively.

Inventories: Inventories are stated at the lower of cost or net realizable value, with cost being determined on the first-in, first-out cost method of accounting. The Company purchases finished goods and materials to assemble kits in quantities that it anticipates will be fully used in the near term. Changes in operating strategy, customer demand, and fluctuations in market values can limit the Company’s ability to effectively utilize all products purchased and can result in finished goods with above-market carrying costs which may cause losses on sales to customers. The Company’s policy is to closely monitor inventory levels, obsolescence and lower market values compared to costs and, when necessary, reduce the carrying amount of its inventory to its net realizable value. As of December 31, 2022 and June 30, 2022, the inventory reserve was $401,000 and $434,000, respectively, and inventory on hand was comprised primarily of finished goods ready for sale.

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

Revenue is recognized when control of the promised goods is transferred at the point of shipment to a customer, and when performance conditions are satisfied, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods as per the agreement with the customer. The Company generates all its revenue under agreements with customers. In case there are agreements with multiple performance obligations, the Company identifies each performance obligation and evaluates whether the performance obligations are distinct within the context of the agreement at the agreement’s inception. Performance obligations that are not distinct at agreement inception are combined. The Company allocates the transaction price to each distinct performance obligation proportionately based on the estimated standalone selling price for each performance obligation and then evaluates how the services are transferred to the customer to determine the timing of revenue recognition.

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

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

F-10

MOVING IMAGE TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Contract liabilities consist of refund and warranty liabilities, as well as deposits received in advance on sales to certain customers. Such deposits are reflected as customer deposits and recognized in revenue when control of the products is transferred or when performance conditions are satisfied per the agreement. The change in contract liabilities (customer deposits and unearned warranty revenue) during the six months ended December 31, 2022 included $2,571,000 for revenue recognized that was included in contract liability as of July 1, 2022. The change in contract liabilities (customer deposits and unearned warranty revenue) during the six months ended December 31, 2021 included $790,000 for revenue recognized that was included in contract liability as of July 1, 2021.

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

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

	For the Three		For the Three		For the Six		For the Six
	Months Ended		Months Ended		Months Ended		Months Ended
Disaggregation of Revenue (in 000’s):	December 31, 2022		December 31, 2021		December 31, 2022		December 31, 2021
Equipment upon delivery (point in time)	$	4,717	$	3,355	$	10,431	$	6,788
Services (point in time)		108		64		234		105
Subscription and services (over time)		18		—		30		—
Total revenues	$	4,843	$	3,419	$	10,695	$	6,893

Revenue from the sale of equipment is recognized upon delivery of such equipment to customers and when performance conditions are satisfied.

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

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

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

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

Advertising Costs: Advertising costs were approximately $3,900 and $11,600 for the three months ended December 31, 2022 and 2021, respectively, and $10,600 and $11,700 for the six months ended December 31, 2022 and 2021, respectively. Advertising costs are expensed as incurred within selling and marketing expenses.

F-11

MOVING IMAGE TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Goodwill and Intangible Assets: Goodwill as of December 31, 2022 and June 30, 2022 represents the excess of the purchase price over the fair value of the net identifiable assets acquired in the 2019 Caddy Acquisition. Goodwill is reviewed for impairment at least annually, in June, or more frequently if a triggering event occurs between impairment testing dates. The Company operates as a single operating segment and as a single reporting unit for the purpose of evaluating goodwill impairment. On July 1, 2022, the Company adopted ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. As such, the Company’s goodwill impairment test includes a one-step qualitative impairment test whereby a goodwill impairment loss will be measured as the excess of a reporting units carrying amount over its fair value. The selection and assessment of qualitative factors used to determine whether it is more likely than not that the fair value of a reporting unit exceeds the carrying value involves significant judgment and estimates. If the fair value of the reporting unit exceeds its carrying value, then no impairment exists. If the estimated fair value of the reporting unit is less than its carrying value, an impairment loss would be recognized for the excess of the carrying value of the reporting unit over the fair value, not to exceed the carrying amount of goodwill.

Goodwill is at risk of future impairment in the event of significant unexpected changes in the Company’s forecasted future results and cash flows, or if there is a negative change in the long-term outlook for the business or in other factors such as the discount rate, or if there is a decline in the stock price.

Intangible assets arising from business combinations, such as customer relationships, trade names, and/or intellectual property, are initially recorded at fair value. The Company amortizes these intangible assets over the determined useful life which generally ranges from 11 to 20 years. The Company reviews its intangible assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be fully recoverable. There were no intangible asset impairments recognized for the three months and six months ended December 31, 2022 or 2021.

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

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

F-12

MOVING IMAGE TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The following table summarizes the components of deferred tax assets and deferred tax liabilities at June 30, 2022 and December 31, 2022 (in thousands):

	Deferred Tax
	Assets (Liabilities)
Inventory reserve	$	122
Accumulated depreciation		(6)
Accumulated goodwill amortization		(12)
Accumulated intangible amortization		8
Unrealized loss on investments		68
Deferred rent		6
Warranty reserve		5
Stock compensation		68
Net operating loss carryforward		594
Allowance for doubtful accounts		39
Net		892
Valuation allowance		(892)
Total June 30, 2022	$	—
Inventory reserve	$	112
Accumulated depreciation		(5)
Accumulated goodwill amortization		(15)
Accumulated intangible amortization		(9)
Unrealized gain on investments		(38)
Deferred rent		5
Warranty reserve		17
Stock compensation		68
Net operating loss carryforward		636
Capital loss carry over		40
Allowance for doubtful accounts		34
Net		845
Valuation allowance		(845)
Total December 31, 2022	$	—

Leases: On July 1, 2022 the Company adopted ASU 2016-02, Leases (Topic 842) which requires lessees to recognize assets and liabilities for the rights and obligations created by most leases on their balance sheet. In accordance with ASC 842, on July 1, 2022 the Company recognized Right of Use Assets in the amount of $665,000 and lease liabilities of $681,000 for the leases associated with its executive office and warehouse space, as described in Note 11.

Product Warranty: The Company’s digital equipment products are sold under various limited warranty arrangements ranging from one year to three years. Company policy is to establish reserves for estimated product warranty costs in the period when the related revenue is recognized. The Company has the right to return defective products it buys from third-party manufacturers, for up to three years, depending on the manufacturers’ individual policies. As of December 31, 2022 and June 30, 2022, the Company has established a warranty reserve of $50,000 and $55,000, respectively, which is included in accrued expenses in the accompanying condensed consolidated balance sheets.

F-13

MOVING IMAGE TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

	Quarter Ended December 31,		Year Ended June 30,
	2022		2022
Product warranty liability, beginning of period	$	55	$	29
Accruals for warranties issued		61		60
Settlements made		(66)		(34)
Product warranty liability, end of period	$	50	$	55

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

Recently Issued Accounting Pronouncements: In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016-13”), which significantly changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 replaces the existing incurred loss model with an expected credit loss model that requires entities to estimate an expected lifetime credit loss on most financial assets and certain other instruments. Under ASU 2016-13 credit impairment is recognized as an allowance for credit losses, rather than as a direct write-down of the amortized cost basis of a financial asset. The impairment allowance is a valuation account deducted from the amortized cost basis of financial assets to present the net amount expected to be collected on the financial asset. Once the new pronouncement is adopted by the Company, the allowance for credit losses must be adjusted for management’s current estimate at each reporting date. The new guidance provides no threshold for recognition of impairment allowance. Therefore, entities must also measure expected credit losses on assets that have a low risk of loss. For instance, trade receivables that are either current or not yet due may not require an allowance reserve under currently generally accepted accounting principles, but under the new standard, the Company will have to estimate an allowance for expected credit losses on trade receivables. ASU 2016-13 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2022 for smaller reporting companies, and as such the Company will adopt this standard on July 1, 2023. The Company is currently assessing the impact ASU 2016-13 will have on its consolidated financial statements.

Other pronouncements issued by FASB with future effective dates are either not applicable or not significant to the consolidated financial statements of the Company.

F-14

MOVING IMAGE TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 — INVESTMENTS

The following tables show the Company’s cash, cash equivalents and marketable securities by significant investment category as of December 31, 2022 (amounts in 000’s):

											Current		Non-current
	Adjusted		Unrealized		Unrealized		Fair		Cash and		Marketable		Marketable
	Cost		Gains		Losses		Value		Cash Equivalents		Securities		Securities
Cash	$	1,575	$	—	$	—	$	1,575	$	1,575	$	—	$	—
Equities
Communication		25		—		(2)		23		—		23		—
Consumer Discretionary		58		—		(8)		50		—		50		—
Consumer Staples		22		1		—		23		—		23		—
Energy		9		1		—		10		—		10		—
Financials		44		—		(5)		39		—		39		—
Health Care		39		1		—		40		—		40		—
Industrials		27		—		(3)		24		—		24		—
Information Technology		124		—		(24)		100		—		100		—
Materials		11		—		—		11		—		11		—
Real Estate		10		—		(2)		8		—		8		—
Utilities		4		—		—		4		—		4		—
Mutual Funds		524		—		(13)		511		—		511		—
										—
Subtotal		897		3		(57)		843		—		843		—
Fixed Income
State & Municipal Bonds		899		—		(19)		880		—		561		319
Fixed income funds		2,747		—		(32)		2,715		—		2,715		—
Subtotal		3,646		—		(51)		3,595		—		3,276		319
Alternative, real estate and other