Moving iMage Technologies, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2023 (the company’s fiscal third quarter). The filing is not for calendar-year 2022 Q3. Amounts below are in U.S. dollars; financial statement amounts are generally in thousands unless stated otherwise.
Business context and results
The company designs, integrates, installs and distributes cinema and venue equipment and services, including proprietary products, third-party technologies, project management and software solutions. Its results are exposed to cinema construction and refurbishment activity, film releases and customer spending.
- Quarter: Revenue was $3.741 million, down 35.9% year over year, which management attributed mainly to fewer new movie releases and reduced theater construction. Gross profit was $1.042 million; gross margin improved to 27.9% from 23.4%. Operating loss was $526,000 and net loss was $424,000, or $0.04 per share, versus net income of $593,000, or $0.06 per share, a year earlier.
- Nine months: Revenue was $14.435 million, up 13.4%. Gross profit rose 31.1% to $3.912 million and gross margin increased to 27.1% from 23.5%. Management attributed the revenue increase partly to COVID-19 Shuttered Venue Operators Grant-related industry incentives and the margin improvement to increased sales and lower-cost inventory purchases. Operating loss was $614,000; net loss was $472,000, or $0.04 per share, compared with a $626,000 net loss, or $0.06 per share, in the prior-year period.
- Expenses and non-operating items: Nine-month operating expenses were $4.526 million, up from $4.295 million. Prior-year results included $705,000 of PPP loan forgiveness income; the company reported no debt at March 31, 2023.
Cash flow, liquidity and balance sheet
- Cash and cash equivalents were $6.357 million at March 31, 2023, versus $2.340 million at June 30, 2022. The company sold all its marketable securities in March; those securities had a reported June 30, 2022 balance of $4.688 million in the investment activity note.
- For the nine months, operating activities used $685,000 of cash; investing activities provided $4.751 million, primarily from investment sales; and financing activities used $49,000 for share repurchases. Cash increased by $4.017 million.
- Current assets were $12.747 million and current liabilities were $5.049 million, implying working capital of approximately $7.698 million. Total liabilities were $5.273 million, including $496,000 of operating lease liabilities; the filing states there was no outstanding debt.
- Management said available liquidity and operating cash flow were expected to fund operations and projected capital needs for at least 12 months from the financial statements’ issuance. The filing does not provide specific revenue or earnings guidance.
Changes, outlook and risks
- Management cited ongoing recovery in theater activity but said the industry had not returned to historical levels of film content and box-office performance. It identified streaming competition, changing release windows, supply delays, inflation, labor and wage pressures, and economic conditions as continuing challenges.
- The company expects to invest in sales, support and product development, including green products, SaaS, LED-screen support systems and Caddy products; it anticipates operating and research and development expenses may increase. Gross margins may be affected by competition, pricing, product mix, purchase costs and inventory write-downs.
- Disclosure controls and procedures were deemed ineffective at March 31, 2023 due to material weaknesses in financial reporting processes, documented accounting policies and procedures, segregation of duties, and journal-entry review. Management reported improving close checklists, segregation of duties and CFO approval of journal entries.
- A stock repurchase program was reauthorized for up to $1 million over 12 months. Through March 31, the company repurchased 47,467 shares for approximately $49,000 at an average $1.025 per share.
- Subsequent event: On April 25, 2023, the company agreed to lend The Five Agency up to $300,000, with $150,000 advanced initially, at 10% interest and principal due May 1, 2026. The arrangement also provides for a 5% interest in a proposed SNDBX entity and a potential additional advance subject to conditions, including a supply agreement targeting more than $3 million in equipment purchases by April 30, 2026.
- One customer represented 12% of quarterly and nine-month sales. Management reported no pending significant legal proceeding expected to materially adversely affect financial position.
Important facts for investors to verify
- Confirm cash at June 30, 2022: the balance sheet reports $2.340 million, while MD&A gives $2.430 million.
- Review the drivers and sustainability of the nine-month revenue and gross-margin improvement, including the effect of grant-related industry incentives and lower-cost inventory.
- Monitor operating cash use, customer deposits, inventory levels and the company’s stated 12-month liquidity outlook.
- Track remediation of the disclosed material weaknesses and whether disclosure controls become effective.
- Verify whether definitive agreements and conditions for the second $150,000 Five Agency advance and the proposed SNDBX supply arrangement were completed.