Significant Accounting Policies

9 Months Ended

Mar. 31, 2023

Summary of Accounting Policies

Recently Issued Accounting Standards

In March 2023, the FASB issued ASU 2023-01, which amends the application of ASU 2016-02, Leases (Topic 842), related to leases with entities under common control, also referred to as common control leases. The amendments to this update require an entity to consider the useful life of leasehold improvements associated with common control leases from the perspective of the common control group and amortize the leasehold improvements over the useful life of the assets to the common control group, instead of the term of the lease. Any remaining value for the leasehold improvement at the end of the lease would be adjusted through equity. The standard is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The adoption is not expected to have a material impact on the Company’s consolidated financial statements.

Quarterly Reporting

The accompanying unaudited condensed consolidated financial statements (“financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and have been consistently applied. Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP, but which are not required for interim reporting purposes, have been omitted. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position as of March 31, 2023 and the results of operations and cash flows for the interim periods ended March 31, 2023 and 2022, have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended June 30, 2022 included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on September 28, 2022. Operating results for the three and nine months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the full year ending June 30, 2023.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("US GAAP") requires management to make estimates and assumptions that impact the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Accounts Receivable

Accounts receivables are recorded at net realizable value. The Company performs ongoing credit evaluations of customers’ financial condition and does not require collateral for accounts receivable arising in the normal course of business. The Company maintains allowances for potential credit losses based on the Company’s historical trends, specific customer issues and current economic trends. Accounts are written off against the allowance when they are determined to be uncollectible based on management’s assessment of individual accounts. The Company recorded an allowance for doubtful accounts of approximately $143,000 and $236,000 as of March 31, 2023, and June 30, 2022, respectively. The Company increased allowance for doubtful accounts at the end of fiscal year 2022 for the middle east government contracts when the invoices were outstanding for over a year and reduced the allowance for doubtful accounts when it received the payments during the quarter ended March 31, 2023.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis and include freight-in materials, labor and overhead costs. Inventories are written down if the estimated net realizable value is less

than the recorded value. The Company reviews the carrying cost of inventories by product to determine the adequacy of reserves for obsolescence. In accounting for inventories, the Company must make estimates regarding the estimated realizable value of inventory. The estimate is based, in part, on the Company’s forecasts of future sales and age of inventory. If actual conditions are less favorable than those the Company has projected, the Company may need to increase its reserves for excess and obsolete inventories. Any increases in the reserves will adversely impact the Company’s results of operations. The establishment of a reserve for excess and obsolete inventory establishes a new cost basis in the inventory. Such reserves are not reduced until the product is sold. If the Company is able to sell such inventory any related reserves would be reversed in the period of sale. In accordance with industry practice, service parts inventory is included in current assets, although service parts are carried for established requirements during the serviceable lives of the products and, therefore, not all parts are expected to be sold within one year.

PPP Loans

Prior to the forgiveness Company's policy was to account for the PPP loan (See Note 7) as debt. The Company will continue to record the loan as debt until either (1) the loan is partially or entirely forgiven and the Company has been legally released, at which point the amount forgiven will be recorded as income or (2) the Company pays off the loan. The full amount of the PPP loan and accrued interest were forgiven on August 13, 2021, and was included in other income in the unaudited condensed consolidated income statement for the nine-month period ended March 31, 2022.

Deferred Revenues

The Company records deferred revenues when cash payments are received or due in advance of its performance. The Company’s deferred revenues relate to payments received for the customer care plans for a 12-month period. The consideration received is recognized monthly over the service period.


(in thousands)	Three Months Ended March 31,				Nine Months Ended March 31,
	2023		2022		2023		2022
Beginning of Period	$	259	$	311	$	332	$	364
Additions	185		148		425		470
Revenue Recognized	149		156		462		531
End of Period	$	295	$	303	$	295	$	303

Earnings (loss) Per Share

Earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year. All outstanding stock options are considered potential common stock. All outstanding convertible preferred stock are considered common stock at the beginning of the period or at the time of issuance, if later, pursuant to the if-converted method. The dilutive effect, if any, of stock options is calculated using the treasury stock method. As of March 31, 2023, and 2022, the average market prices for the three-month and nine-month periods then ended are less than the exercise price of all the outstanding stock options and, therefore, the inclusion of the stock options would be anti-dilutive. In addition, since the effect of common stock equivalents is anti-dilutive with respect to losses, the convertible preferred stock has also been excluded from the Company’s computation of loss per common for the three-month and nine-month periods ended March 31, 2022. Therefore, basic and diluted loss per common share for the three-month and nine-month periods ended March 31, 2022 are the same.


	For the Three Months Ended March 31,				For the Nine Months Ended March 31,
	2023		2022		2023		2022
Numerator:
Numerator for basic loss per share:
Net income (loss)	$	585,235	$	(296,016)	$	258,468	$	(31,950)
Undeclared dividends on preferred stock	13,006		13,006		38,735		39,018
Net income (loss) applicable to common shareholders	$	572,229	$	(309,022)	$	219,733	$	(70,968)
Numerator for diluted earnings per share:
Net income (loss) applicable to common shareholders	$	572,229	$	(309,022)	$	219,733	$	(70,968)
Undeclared dividends on preferred stock	13,006		—		38,735		—
Diluted income (loss)	$	585,235	$	(309,022)	$	258,468	$	(70,968)
Denominator for basic earnings (loss) per share
Denominator for basic earnings (loss) per share - weighted average shares outstanding	7,415,329		7,415,329		7,415,329		7,415,329
Weighted average preferred stock converted to common stock	6,063,607		—		6,063,607		—
Denominator for diluted earnings (loss) assumed conversion	13,478,936		7,415,329		13,478,936		7,415,329
Net earnings (loss) per share:
Basic net earnings (loss) per share	$	0.08	$	(0.04)	$	0.03	$	(0.01)
Earnings (loss) per share	$	0.04	$	(0.04)	$	0.02	$	(0.01)

The following table summarizes convertible preferred stock and securities that, if exercised would have an anti-dilutive effect on earnings per share.


	For the Three Months Ended March 31,		For the Nine Months Ended March 31,
	2023	2022	2023	2022
Stock options	157,000	157,000	157,000	157,000
Convertible preferred stock	—	5,720,993	—	5,720,993
Total potential dilutive securities not included in income per share	157,000	5,877,993	157,000	5,877,993

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the unaudited condensed consolidated financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. As of March 31, 2023, and June 30, 2022, the Company has a fully recorded valuation allowance against its deferred tax assets.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying unaudited condensed consolidated statements of operations. As of March 31, 2023 and June 30, 2022, no accrued interest or penalties were required to be included on the related tax liability line in the unaudited condensed consolidated balance sheets.