Moving iMage Technologies, Inc. — Fiscal 2021 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended June 30, 2021, with comparative information for fiscal 2020. Moving iMage Technologies designs, manufactures, integrates, installs and distributes digital cinema equipment, software and services, including projection, sound, automation, lighting, seating, theater management systems and turnkey furniture, fixtures and equipment services. Its Caddy Products subsidiary serves cinema, sports, grocery, worship, restaurant and other markets.
The audited financial statements are those of Moving iMage Technologies, LLC, the predecessor operating entity. In July 2021, the LLC became a wholly owned subsidiary of Moving iMage Technologies, Inc. through an exchange of LLC interests for 2.35 million shares. The company completed its initial public offering on July 12, 2021, selling 4.83 million shares at $3.00 per share.
Financial performance and liquidity
| Metric | Fiscal 2021 | Fiscal 2020 | Change |
|---|---|---|---|
| Net revenue | $7.247 million | $16.367 million | Down 55.7% |
| Gross profit | $1.689 million | $4.334 million | Down 61.0% |
| Gross margin | 23.3% | 26.5% | Down 3.2 percentage points |
| Operating loss | $1.499 million | $0.620 million | Loss increased |
| Net loss | $1.042 million | $0.883 million | Loss increased |
| Cash used in operating activities | $1.631 million | $0.576 million | Cash use increased |
| Cash at year-end | $1.269 million | $1.058 million | Increased $0.211 million |
Revenue declined primarily because COVID-19 temporarily closed cinemas, delayed film releases and caused customers to cancel or defer equipment deliveries, theater construction and refurbishment projects. Gross margin declined because higher-margin parts and services represented a smaller portion of revenue and Caddy cupholder sales decreased.
Research and development expense was $152,000 versus $240,000, while selling, marketing and general and administrative expenses declined to $3.036 million from $4.714 million due to furloughs, headcount reductions, executive compensation reductions and other cost controls. Other income of $457,000 in fiscal 2021 primarily reflected $694,000 of PPP loan forgiveness, partly offset by $237,000 of interest expense.
At June 30, 2021, total assets were $5.719 million, including $454,000 of net accounts receivable and $1.534 million of inventory. Total liabilities were $7.730 million, resulting in members' deficit of $2.011 million and a working capital deficit of approximately $2.660 million. Debt included $1.939 million of long-term notes, $590,000 outstanding under a line of credit and $1.272 million owed under a related-party working capital loan. The line of credit was repaid in July 2021, related notes were repaid in August 2021 and the related-party loan was forgiven in connection with the IPO.
The IPO generated approximately $14.5 million of gross proceeds and $11.5 million of net proceeds. Management expected to use up to approximately $6.0 million for sales and marketing expansion, with the balance for working capital and potentially strategic acquisitions. Cash was approximately $10.61 million at August 31, 2021.
Material changes versus the prior comparable period
- Revenue fell 55.7%, and gross profit fell 61.0%, reflecting the pandemic-related disruption to cinema customers.
- Gross margin decreased from 26.5% to 23.3% because of unfavorable product mix and lower Caddy cupholder sales.
- Operating loss widened from $620,000 to $1.499 million, and net loss increased from $883,000 to $1.042 million despite lower operating expenses.
- Operating cash outflow increased from $576,000 to $1.631 million, while financing provided $1.844 million, including PPP proceeds and additional borrowings.
- Backlog declined from $10.9 million at June 30, 2020 to approximately $9.44 million or $9.6 million as reported in different sections of the filing; management expected substantial shipment within six months.
- Customer concentration increased: the top ten customers represented approximately 55% of revenue versus 46% in fiscal 2020, and one customer represented approximately 23% of fiscal 2021 sales.
Guidance, outlook, risks and unusual items
Management did not provide formal numerical revenue or earnings guidance. It stated that fiscal 2021 results and projected results for the first two fiscal quarters and balance of fiscal 2022 were expected to be materially adversely affected by COVID-19. Management anticipated continued investment in sales personnel, customer support, product development, green products, software, LED screen systems and Caddy products, which is expected to increase operating expenses.
- COVID-19 and cinema demand: Further closures, limited occupancy, delayed film releases and delayed theater projects could continue to reduce revenue, cash flow and customer collectability.
- Liquidity: The company had recurring losses, negative operating cash flow and a substantial working capital deficit before the IPO. Management stated that IPO proceeds and cost controls should provide sufficient liquidity for at least 12 months from the financial statement issuance date, but additional financing may be required if conditions deteriorate.
- Customer concentration: Most customer arrangements are purchase orders terminable at will. A reduction in purchases by major customers could materially affect results.
- Backlog conversion: Backlog may be delayed, modified or cancelled, and therefore may not convert fully into revenue or cash flow.
- Supplier and margin risk: The company depends on third-party OEMs and suppliers and faces competitive pricing, component-cost inflation, supply interruptions and potential inventory obsolescence.
- Seasonality and contract timing: New theater construction and refurbishment projects can be delayed by financing, permits, weather and other factors. The second fiscal quarter is traditionally weaker.
- Internal controls: Management concluded that disclosure controls were not effective as of June 30, 2021 because of material weaknesses involving the closing and financial reporting process, undocumented accounting procedures, segregation of duties and journal-entry review.
- Unusual items: Fiscal 2021 results included $694,000 of PPP loan forgiveness. The company also received approximately $1.39 million of COVID-19 relief support in aggregate.
- Public-company transition: The company is an emerging growth company and is using reduced reporting requirements. It was not required to provide management's internal-control assessment or auditor attestation for this filing, but expects additional Section 404 requirements beginning in fiscal 2022.
Most important facts for investors to verify
- Reconcile the reported June 30, 2021 backlog, which is stated as both approximately $9.44 million and $9.6 million.
- Review post-year-end use of the approximately $11.5 million IPO proceeds and confirm the repayment, forgiveness and terms of outstanding debt.
- Assess whether cinema reopenings, film-release schedules and theater construction activity support recovery from the 55.7% revenue decline.
- Monitor customer concentration, including the customer responsible for approximately 23% of fiscal 2021 sales.
- Evaluate progress in remediating the material weaknesses in internal control over financial reporting.
- Assess cash burn, working capital requirements and the likelihood of additional financing if operating cash flow remains negative.
- Confirm the status of the second PPP loan forgiveness and any related repayment obligation.