MOVING iMAGE TECHNOLOGIES INC

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 the 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. 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. As a result, the historical financial statements of MiT LLC and MiT Inc. have been retroactively revised to reflect the consolidation of MiT Inc. and MiT LLC. All inter-company transactions and balances between MiT Inc. and MiT LLC have been eliminated.

The consolidated statements of stockholders’ equity have been retroactively revised to give effect of the change in reporting entity accounting of MiT Inc. and MiT LLC.

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.

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 on 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.

Through 2020 and 2022 the theatres reopened as soon as local restrictions, and the status of the COVID-19 pandemic would allow. As of June 30, 2024, 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 Company’s current estimates of recovery, it believes it has, and will generate, sufficient cash to sustain operations at least 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 consolidated financial statements include the accounts of MiT Inc., its wholly owned subsidiary, Moving iMage Technologies, LLC (“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”).

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 the purposes of making operating decisions and assessing financial performance. The Company has determined that it has a single operating and reportable segment.

Marketable Securities: In March 2023, the Company sold all its marketable securities with the proceeds deposited to the Company’s cash account. As a result, the prior fair value and market data disclosure are no longer needed for the period ended June 30, 2024 and June 30, 2023.

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

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

Assets and Liabilities Not Measured - 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 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. For the year ended June 30, 2023, the Company recognized $0.954 million in impairments. See the additional discussion in Note 7 below. There wereno impairments recognized for the year ended June 30, 2024.

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

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

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 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.

Cash Equivalents and Marketable Securities: All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents. The Company’s investments in marketable debt securities are carried at either amortized cost or fair value. Investments in debt securities that the Company has the positive intent and ability to hold to maturity are carried at amortized cost and classified as held-to-maturity. Investments in debt securities that are not classified as held-to-maturity are carried at fair value and classified as available-for sale. Realized gains and losses on available-for-sale debt securities are included in net income/loss. Unrealized gains and losses, net of tax, on available-for-sale debt securities are recognized in other comprehensive gain/(loss). The Company’s investments in marketable equity securities are classified based on the nature of the securities and their availability for use in current operations. The Company’s marketable equity securities are measured at fair value with gains and losses recognized in other income/(expense), net. The cost of securities sold is determined using the specific identification method.

Accounts Receivable: Accounts receivables are carried at original invoice amount less allowance for credit losses. Management determines the allowance for credit losses by identifying troubled accounts and by using historical experience applied to an aging of accounts. Accounts receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received. Accounts receivables 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 June 30, 2024 and 2023, the allowance for credit losses is approximately $378,000 and $127,000, 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 June 30, 2024 and 2023, inventory on hand was comprised primarily of finished goods ready for sale. As of June 30, 2024 and 2023, the inventory reserve was $1,106,000 and $584,000, respectively.

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 as per the agreement, in an amount that reflects the consideration that we expect to receive in exchange for those goods as per the agreement with the customer. We generate all our revenue from agreements with customers. In case there are agreements with multiple performance obligations, we identify each performance obligation and evaluate 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. We allocate the transaction price to each distinct performance obligation

proportionately based on the estimated standalone selling price for each performance obligation and then evaluate how the services are transferred to the customer to determine the timing of revenue recognition.

Management 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). Other than accounts receivable, there were no other contract assets as of June 30, 2024 or 2023.

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.

Cost of goods sold includes cost of inventory sold during the period, net of vendor discounts and allowances, 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, collectively “deferred contract acquisition costs”, are considered incremental and recoverable costs of obtaining a contract with a customer. Management 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.

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

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

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

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

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 the cost of goods sold and are recognized as a period expense during the period in which they are incurred.

Advertising Costs: Advertising costs of approximately $34,000 in 2024 and $24,000 for 2023 are expensed as incurred within selling and marketing expenses.

Goodwill and Intangible Assets: Goodwill 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 and intangible asset impairment. The Company’s impairment assessment begins with a qualitative assessment to determine whether it’s more likely than not that the fair value of the reporting unit is less than its carrying value. The qualitative assessment includes comparing the overall financial performance of the Company against the planned results used in the last quantitative goodwill impairment test. Additionally, the Company’s fair value is assessed in light of certain events and circumstances, including macroeconomic conditions, industry and market considerations, cost factors, and other relevant entity and Company specific events. 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 it is determined under the qualitative assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then a quantitative impairment test is performed. Under the quantitative impairment test, the estimated fair value of the reporting unit would be compared with its carrying value (including goodwill). 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.

In June 2023, the Company conducted its annual impairment assessment and determined that the carrying value of the Caddy goodwill and customer relationships intangible assets had declined. Accordingly, the Company impaired the entire$0.287 million in goodwill and $0.263 million in the customer intangible asset. Total intangible assets, including trademark, patents and customer relationship, were$0.422 million as of June 30, 2024 compared to $0.480 million as of June 30, 2023.

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.

In 2023, the Company recognized $263,000 in intangible asset impairments. There wasno intangible asset impairments recognized for the year ended June 30, 2024.

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.

Product Warranty: The Company’s digital equipment products are sold under various limited warranty arrangements ranging fromone year tothree 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 for up tothree years, depending on the manufacturers’ individual policies. As of June 30, 2024 and 2023, the Company has established a warranty reserve of $69,000 and $53,000, respectively, which is included in accrued expenses in the accompanying consolidated balance sheets.

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

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.

Share-Based Compensation: The Company accounts for share-based payments in accordance with ASC 718,Compensation-Stock Compensation. Accordingly, the Company expenses the fair value of awards made under its share-based compensation plans. That cost is recognized in the consolidated financial statements over the requisite service period of the grants.

Recently Issued Accounting Pronouncements: In February 2016, the FASB issued ASU No. 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. The guidance is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early application is permitted. ASU 2016-02 requires modified retrospective adoption for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. 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 a lease liability of$681,000 for the leases associated with its executive office and warehouse space, as described in Note 13.

In December 2019, the FASB issued ASU No. 2019-12,Income Taxes (Topic 740):Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which is intended to simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to

the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The new standard was adopted beginning July 1, 2022.

In January 2017, the FASB issued ASU 2017-04,“Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” effective for fiscal years beginning after December 15, 2021, with an election to adopt early. The ASU requires only a one-step qualitative impairment test, whereby a goodwill impairment loss will be measured as the excess of a reporting unit’s carrying amount over its fair value. It eliminates Step 2 of the current two-step goodwill impairment test, under which a goodwill impairment loss is measured by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The Company adopted this standard on July 1, 2022.

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.

The Company adopted the new pronouncement on July 1, 2023. The allowance for credit losses has been 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, Management has estimated an allowance for expected credit losses on trade receivables.

Due to the Management’s continuing ability to obtain 90% of contract value in up-front customer deposits, the Company’s risk is only the remaining 10% of the customer’s contract value. The combined effect of up-front customer deposits, prompt collection of trade receivables and application of historical aging criteria has resulted in minimal bad debts and allowances for credit losses.

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

NOTE 2 — INVESTMENTS

In March 2023, the Company sold all of its marketable securities with the proceeds deposited to the Company’s cash account.

NO

NOTE 3 — SNDBX AGREEMENTS

On April 25, 2023, the Company entered into a Letter Agreement, subject to definitive agreements, with The Five Agency, LLC (“The Five Agency”). The Five Agency operates gaming leagues at various theaters, cinemas, movie theaters, entertainment complexes and auditoriums, and provides league structures, hosts, management, supervision, coordination with game publishers, marketing and marketing assets for leagues and events under the brand SNDBX. The Five Agency and the Company jointly designed the equipment package that will be used for that purpose. Pursuant to the Letter Agreement, the Company agreed to lend The Five Agency $300,000 (the “Loan”), which will be provided intwo equal installments as further described below, and The Five Agency will form a separate Florida corporation, SNDBX, INC ("SNDBX"), to conduct that business. As a portion of the consideration

payable to MiT under the Loan, upon the formation of SNDBX, The Five Agency will cause SNDBX to issue the Company 5% of the equity of SNDBX, which will be issued to MiT regardless of whether the second $150,000 advance conditions described below are satisfied by The Five Agency or SNDBX. Plus, the Company has the right to participate in any and all future capital and debt offerings by SNDBX.

Pursuant to the terms of the Loan, on April 25, 2023, and subject to the satisfaction of the conditions described in the Letter Agreement, the Company extended an initial loan of $150,000 to The Five Agency with interest at 10% per annum payable each year commencing on May 1, 2024 with principal due on May 1, 2026. The Loan is secured by the Patents (as defined below). The Company also agreed to advance an additional $150,000 upon the request of The Five Agency upon satisfying certain customary conditions, such as execution of definitive agreements and board and other approvals, and completing the following conditions by May 31, 2023:

NOTE 3 — SNDBX AGREEMENTS (continued)

The Company has the right to appoint an advisory board member, who will be approved by The Five Agency, and will have board observation rights for any formal board meetings of The Five Agency and SNDBX until April 30, 2026, or until the Loan is paid in full, whichever comes later.

The Company and either The Five Agency or SNDBX will be co-owners of the equipment patents (the “Patents”) and will share the costs. The Five Agency will apply for Patents on or before April 30, 2024 and after expiration of the Supply Agreement inthree years, either party may sell equipment to others with the Company entitled to a reasonable royalty rate equal to a percentage the net sales. In the event of a transfer of the co-owned Patent rights, the Company will automatically become the sole owner of the Patents.

On June 6, 2023, the Company entered into a Convertible Note Purchase Agreement (the “Purchase Agreement”), with SNDBX, INC. ("SNDBX") pursuant to which SNDBX issued and sold an unsecured convertible promissory note (the “Note”) to the Company for the principal amount of $100,000.

The Note matures on June 5, 2024, (the “Maturity Date”) and accrues simple interest at an annual rate of 5%, payable at any time on or after the Maturity Date. At the Company’s election the Note (including accrued interest) is convertible into stock of SNDBX having the same rights and privileges of stock owned by the founders of SNDBX (the “Founders Shares”) at any time on or after the Maturity Date at a conversion price of $5,000 per Founders Share, ortwenty (20) SNDBX Founders Shares.

SNDBX may repurchaseten (10) of thetwenty (20) Founders Shares at any time during the two (2) year period after the date of the Note’s conversion, for an aggregate repurchase price of $500,000. If SNDBX exercises such repurchase option, $100,000 of the repurchase price is due and payable on the date of such election, and the remaining $400,000 is paid in installments of $100,000 annually thereafter on such date. The Purchase Agreement contains customary representations and warranties.

The following events constitute an event of default under the Note: (i) SNDBX’s failure to pay timely any of the principal amount due under the Note on the date the same becomes due and payable or any unpaid accrued interest or other amounts due under the Note on the date the same becomes due and payable; (ii) SNDBX files any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law or any other law for the relief of, or relating to, debtors, now or hereafter in effect, or

makes any assignment for the benefit of creditors or takes any corporate action in furtherance of any of the foregoing; or (iii) an involuntary petition is filed against SNDBX (unless such petition is dismissed or discharged within 90 days under any bankruptcy statute now or hereafter in effect, or a custodian, receiver, trustee or assignee for the benefit of creditors (or other similar official) is appointed to take possession, custody or control of any property of SNDBX. Upon an event of default, the Note will accelerate, and all principal and unpaid accrued interest will become due and payable.

The Note and the Founders Shares underlying the Note have not been registered under the Securities Act of 1933, as amended, or any state securities laws, and may not be offered or sold absent registration or an applicable exemption from registration requirements.

On June 30, 2023, the Company determined the Notes Receivable balance of $0.400 million was unrealizable due to SNDBX delays and execution risk and fully reserved the $400,000 balance. The$0.400 million is included within impairment expense for the year ended June 30, 2023.

NOTE

NOTE 4 - SHARE BUYBACK

On March 23, 2023 the Board of Directors authorized a stock repurchase program. Under the stock repurchase program, the Company may repurchase up to$1 million of its outstanding common stock over the next 12 months.

On October 2, 2023, the Company entered into a 10b5-1 stock trading plan to facilitate the Company’s previously re-authorized one-year, $1 million share repurchase program announced on March 23, 2023. All repurchases will be implemented in accordance with the applicable requirements of Rule 10b-18 under the U.S. Securities Exchange Act of 1934. By June 30, 2023, the Company had repurchased approximately 273,000 shares for $303,000, leaving $697,000 available for future repurchases.

On April 1, 2024, the Board of Directors authorized a new share repurchase program for the repurchase of up to $697,000 worth of shares and will expire at the earlier of June 30, 2024, or when the maximum dollar amount of shares is repurchased. All repurchases will be implemented in accordance with the applicable requirements of Rule 10b-18 under the U.S. Securities Exchange Act of 1934. The share repurchase plan ended on June 30, 2024.

NOTE 5 — LOSS PER SHARE

Basic loss per share data for each year presented is computed using the weighted average number of shares of common stock outstanding during each such year. Diluted loss per share data is computed using the weighted average number of common and potentially dilutive securities outstanding during each year. Potentially dilutive securities consist of shares that would be issued upon the exercise of stock options and warrants, computed using the treasury stock method. A reconciliation of basic and diluted loss per share is as follows:

The following securities were excluded from the calculation of diluted loss per share in each year because their inclusion would have been anti-dilutive:

For the years ended June 30, 2024 and 2023, the Company had net losses, therefore all potentially dilutive securities are deemed to be anti-dilutive and are not included in the diluted loss per share computation. No options were granted in the year ended June 30, 2024.

NOTE 6 — PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

Depreciation expense related to property and equipment were $12,000 in 2024 and $9,000 in 2023, with $0 and $0 included in cost of goods sold and $12,000 and $9,000 in general and administrative expense, respectively.

Depreciation of property and equipment is calculated using the straight-line method over their estimated useful lives as follows:

NOTE 7 — GOODWILL AND INTANGIBLE ASSETS

The following table summarizes the Company’s intangible assets as of June 30, 2024 (in thousands):

The following table summarizes the Company’s intangible assets as of June 30, 2023 (in thousands):

NOTE 7 — GOODWILL AND INTANGIBLE ASSETS (continued)

For the year ended June 30, 2024, amortization expenses were $58,000 For the years ended June 30, 2023, amortization expense was$358,000 consisting of recurring annual $95,000 expense and the impairment charge of $263,000 – see Note 1. Amortization expense is included in general and administrative expense.

Goodwill’s impairment was $0 and $287,000 for the years ended June 30, 2024 and 2023, respectively, and are included in general and administrative expenses. Estimated amortization expense related to intangible assets subject to amortization at June 30, 2024 in each of the five fiscal years subsequent to June 30, 2024, and thereafter is as follows (amounts in thousands):

NOTE 8 — ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

NOTE 9 — STOCKHOLDERS’ EQUITY

In 2019, the Company adopted the 2019 Omnibus Incentive Plan (the “Plan”). The Plan, as amended, provides for the issuance of stock-based awards to employees. As of June 30, 2024, the Plan provided for the issuance of up to 1,220,000 stock-based awards available to grant under the Plan at June 30, 2024.

In July 2021, MiT Inc. entered into an Exchange Agreement with MiT LLC pursuant to which MiT Inc. agreed to exchange membership units for 2,350,000 shares of Common Stock representing 41.4% of the equity as of such date on a fully diluted basis for no consideration. The shares were exchanged as part of the Exchange Agreement with the Company as described in Note 1.

NOTE 9 — STOCKHOLDERS’ EQUITY (continued)

In July 2021, the Company granted options to non-employee directors to purchase an aggregate of 150,000 shares of its common stock at an exercise price of$3.00 per share. The options vestone year from the date of grant, expireten years from the date of grant and had an aggregate grant date fair value of$244,200, which will be recognized ratably over the vesting period. On May 26, 2023, the Board of Directors cancelled 150,000 options consisting of 50,000 options each to John Stiska, Katherine Crothall and Scott Anderson with an exercise price of$3.00. In its place, the Board granted 150,000 options consisting of 50,000 options each with an exercise price of$1.10 vesting immediately to John Stiska, Katherine Crothall and Scott Anderson. In addition to the director options, the Board granted CFO William Greene 100,000 options with an exercise price of$1.10 with 25% vesting immediately the remainder vesting at 25% per year thereafter. These options, which were the only options granted during the year ended June 30, 2024, had a grant-date fair value of$1.10 per share. The Company recognized compensation expense for stock option awards of approximately$21,000 during the year ended June 30, 2024. None of these potentially dilutive securities were included in the computation of diluted earnings per share as their impact would be anti-dilutive.

On March 6, 2023, the Board of Directors (the “Board”) of the Company approved an amendment (the “Amendment”) to the Company’s Amended and Restated Bylaws that amends the quorum for a stockholders’ meeting or action to be at least 33 1/3% of all shares of stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy.

The estimated fair value of each option award granted was determined on the date of grant using the Black-Scholes option valuation model. The following weighted average assumptions were used for the Board of Director and Officer option grants during the year ended June 30, 2024:

A summary of the status of the Company’s stock options as of June 30, 2024 and 2023 and changes during the years ended June 30, 2024 and 2023 are presented below.

Future vesting of options will be 25,000 shares in each of years ended June 30, 2025 and 2027, respectively. Future option vesting expense will be$21,000 in each of years ended June 30, 2025 and 2027, respectively.

The following table summarizes the outstanding stock options at June 30, 2024:

NOTE 9 — STOCKHOLDERS’ EQUITY (continued)

There wasno warrant activity during the year ended June 30, 2024.

On November 1, 2023, the Company increased CEO Phil Rafnson’s compensation from $150,000 to $200,000 annually.

On May 8, 2024, the Board of Directors authorized a $25,000 payment to CEO Phil Rafnson as part of a pay increase to $250,000 per year from the CEO’s current pay of $200,000, effective as of November 1, 2023.

NOTE 10 — INCOME TAXES

The following table summarizes deferred tax assets and liabilities as of the date of the Exchange Agreement and through June 30, 2024:

NOTE 10 — INCOME TAXES (continued)

The following table summarizes the components of deferred tax assets and deferred tax liabilities:

The income tax expense differs from the amount computed by applying the statutory income tax rates to the loss before income tax. The following table shows the reasons for these differences:

At June 30, 2024 the Company has approximately $5,293,000 of U.S. Federal and State NOL carryforwards, which will be available for future use to offset taxable income.

The Company recognized a valuation allowance of $2,157,000 and $1,555,000 as of June 30, 2024 and 2023, respectively, as all U.S. Federal and state deferred tax assets have been determined to be not more likely than not realizable. Management does not believe that it had any significant uncertain tax positions at June 30, 2024 and 2023, nor is this expected to change within the next twelve months due to the settlement and expiration of statutes of limitation.

NOTE 11 — CUSTOMER AND VENDOR CONCENTRATIONS

Customers: No customer accounted for more than 10% of accounts receivable at June 30, 2024. One customer accounted for 14% of accounts receivable at June 30, 2023.

NOTE 11 — CUSTOMER AND VENDOR CONCENTRATIONS (continued)

Vendors: For the year ended June 30, 2024, the two largest vendors provided 16% and 13%, respectively, of the Company’s purchases. For the year ended June 30, 2023, the two largest vendors provided 20% and 15%, respectively, of the Company’s purchases.

On June 30, 2024, one vendor accounted for 38% of accounts payable at June 30, 2024. At June 30, 2023, the one vendor accounted for 20% of accounts payable balance.

NOTE 12 — COMMITMENTS AND CONTINGENCIES

Operating Leases: The Company occupies an executive office and warehouse space in Fountain Valley, CA, pursuant to separate lease agreements. Under ASC 842, at contract inception the Company determined whether the contract is or contains a lease and whether the lease should be classified as on operating or a financing lease. Operating leases are included in ROU (right-of-use) assets and operating lease liabilities in our condensed consolidated balance sheet.

The Company’s executive office and warehouse lease agreements are classified as operating leases. The lease agreements, as amended, expire on January 31, 2025, and do not include any renewal options. The agreements provide for initial monthly base amounts plus annual escalations through the term of the leases.

In addition to the monthly base amounts in the lease agreements, the Company is required to pay a portion of real estate taxes and common operating expenses during the lease terms. The aggregate rent expense was $291,000 and $287,000 for the year ended June 30, 2024 and 2023, respectively.

On June 4, 2024, the Company notified its Grace facility location landlord of its intent to vacate at the end of the current January 31, 2025 lease term.

Future minimum lease payments at June 30, 2024 under these arrangements are as follows:

The following table sets forth the ROU assets and operating lease liabilities as of June 30, 2024:

NOTE 12 — COMMITMENTS AND CONTINGENCIES (continued)

Legal Matters: From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. There are no pending significant legal proceedings to which the Company is a party for which management believes the ultimate outcome would have a material adverse effect on the Company’s financial position.

NOTE 13 — SUBSEQUENT EVENTS

The Company has evaluated events from June 30, 2024 through September 27, 2024, the date these consolidated financial statements were available to be issued.

Following the June 30, 2024 year end, on July 23, 2024, the Company renewed its Fountain Valley location effective February 1, 2025 by an additional five years with a January 1, 2030.lease expiration date. Both parties agreed that July 23, 2024 was the effective modification date. The monthly rent payable for the first year of the extended term will be$19,362 and increases by 4% on each anniversary date. On June 4, 2024, the Company notified its Grace facility location landlord of its intent to vacate at the end of the current January 31, 2025 lease term.

On August 8, 2024, the Board of Directors authorized salary reductions of $100,000 for the CEO from $250,000 to $150,000 and salary reductions for the Executive VP, Operations, Executive VP, Sales and Marketing from $234,000 to $220,000, respectively and the CFO from $220,000 to $200,000.

Management has evaluated events from June 30, 2024 through September 27 2024, the date these financial statements were available to be issued and determined that there have been no other events that occurred that would require adjustment to our disclosures in the condensed consolidated financial statements.

EXHIBIT INDEX

Index to Exhibits