Moving iMage Technologies, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2022, the company’s fiscal 2023 first quarter (not calendar 2022 Q1). Financial statements are unaudited; amounts below are in U.S. dollars.
Business context
The company supplies, designs, integrates and installs cinema and venue technology, equipment and services, and manufactures proprietary products through its Caddy Products subsidiary. It also offers software and other newer products. The company reports one operating and reportable segment.
Financial performance and position
| Metric | Quarter ended Sep. 30, 2022 | Comparable 2021 period / prior balance-sheet date |
|---|---|---|
| Net sales | $5.852 million | $3.474 million |
| Gross profit / gross margin | $1.559 million / 26.6% | $0.722 million / 20.8% |
| Operating income (loss) | $48,000 | $(539,000) |
| Net loss / diluted loss per share | $(95,000) / $(0.01) | $(577,000) / $(0.06) |
| Cash from operations | $(20,000) | $(769,000) |
| Cash and cash equivalents | $2.294 million | $2.340 million at June 30, 2022 |
| Marketable securities | $4.549 million total | $4.688 million at June 30, 2022 |
| Total assets / stockholders’ equity | $15.696 million / $9.473 million | $14.851 million / $9.415 million at June 30, 2022 |
Revenue rose 68.5%, primarily from projector sales associated with a technology upgrade cycle and the addition of the QSC product line. Gross profit increased 115.9%; management attributed the higher margin mainly to product mix and a prior-year inventory-reserve effect. Operating expenses were $1.511 million, versus $1.261 million, with higher selling, general and administrative costs primarily reflecting compensation. Other expense was $143,000, including $140,000 of unrealized and $23,000 of realized investment losses, partly offset by interest and other income.
Current assets were $13.637 million and current liabilities $5.859 million at quarter-end, a current ratio of approximately 2.3. The company had no outstanding debt; operating lease liabilities were $622,000, of which $258,000 was current. Cash used in investing activities was $26,000, largely reflecting net purchases of marketable securities; there was no financing cash flow. Cash decreased by $46,000 during the quarter.
Material changes and unusual items
- Revenue and gross margin improved substantially year over year, and the operating result moved from a loss to modest income; the company nevertheless reported a net loss.
- Accounts payable increased to $3.179 million from $1.583 million, while customer deposits fell to $1.846 million from $3.158 million. Inventory increased to $4.920 million from $4.033 million.
- Effective July 1, 2022, the company adopted lease accounting guidance and recognized right-of-use assets and lease liabilities. At September 30, the right-of-use asset was $604,000.
- On July 12, 2022, the company issued 130,000 shares to employees for previously provided services, recorded at approximately $153,000.
Outlook, risks and controls
Management said existing liquidity and expected operating cash flow should fund operations and projected capital needs for at least 12 months from issuance of the financial statements. No specific revenue or earnings guidance was provided. Management expects investment in sales, support, product development and infrastructure, and anticipates research and development expense may increase as the business expands.
Management described the cinema industry recovery as ongoing. Risks cited include COVID-19 effects, film-content and box-office recovery, competition from streaming, supply-chain delays, inflation and labor pressures, product-cost and margin changes, customer demand and concentration, inventory management, seasonality, and converting backlog to revenue and cash. One customer represented about 17% of quarterly sales; two vendors represented approximately 32% and 14% of purchases.
Disclosure controls and procedures were deemed ineffective as of September 30, 2022 because of material weaknesses in financial reporting processes, documented accounting policies and procedures, segregation of duties, and review of journal entries. No material changes to internal control were reported during the quarter. The company reported no material pending legal proceedings and no material changes to the risk factors in its latest annual report.
Important facts for investors to verify
- Whether the sales increase and gross-margin improvement are repeatable, including the contribution and sustainability of projector upgrades and the QSC product line.
- Whether working-capital movements, particularly higher payables and lower customer deposits, affect future operating cash flow and liquidity.
- The performance, valuation sensitivity and liquidity of the marketable-securities portfolio following the quarter’s investment losses.
- Management’s remediation progress and timing for addressing the disclosed material weaknesses in internal controls.
- How industry recovery, supplier concentration, customer concentration and supply-chain or inflationary pressures affect backlog conversion and margins.