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Significant Accounting Policies (Policies)

6 Months Ended

Dec. 31, 2023

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASC 326”), authoritative guidance amending how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2022. The adoption of the new guidance will not have a material impact on the Company's unaudited consolidated financial statements. The Company adopted the current expected credit loss model prospectively from fiscal year 2024, and assessed the allowance for expected credit losses to reflect the risk of loss, even when that risk is remote. The Company continues to use the aging matrix in conjunction with the historical information, current conditions, and reasonable and supportable forecasts. The Company groups most of the trade receivable by pools after adoption of the new standards while it analyzed the credit loss of the trade receivables one by one before adoption. The major difference is the estimate of the current expected credit loss for the receivable that are current on their payment. For the six-month period ended December 31, 2023, the adoption of the new guidance did not have a material impact on the Company's unaudited consolidated financial statements. The Company will continue to assess the current expected credit loss. It may need to recognize a credit loss in the income statement earlier than under the legacy guidance at certain times when the expected credit loss is increased.

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 adopted the current expected credit loss model prospectively from fiscal year 2024, and assessed the allowance for expected credit losses to reflect the risk of loss, even when that risk is remote. The Company continues to use the aging matrix in conjunction with the historical information, current conditions and reasonable and supportable forecasts. The Company groups most of the trade receivable by pools after adoption of the new standards while it analyzed the credit loss of the trade receivables one by one before adoption. The major difference is the estimate of the current expected credit loss for the receivables that are current on their payment. With adoption of the new standards, the small credit loss rate applied to current receivables will be mostly offset by the lower expected credit rate applied to over 120 days past due when less than 100% of expected credit loss is applied. The historical credit loss rate is adjusted for current conditions and management's assessment for factors such as international relations, economic conditions, and special-term contracts etc. For the six-month period ended December 31, 2023, the adoption of the new guidance did not have a material impact on the Company's unaudited consolidated financial statements. The Company will continue to assess the current expected credit loss. It may need to recognize a credit loss in the income statement earlier than under the legacy guidance at certain time when the expected credit loss is increased. The Company recorded an allowance for credit losses of approximately $133,524 and $153,878 as of December 31, 2023, and June 30, 2023, respectively.

The activity for the allowance for credit losses during the three-month and six-month periods ended December 31, 2023, and the fiscal year ended June 30, 2023, is as follows:



	Three months Ended December 31,				Six months Ended December 31,
	2023		2022		2023		2022
Balance, at the beginning of the period	$	133,524	$	241,349	$	153,878	$	236,349

Provision (Reversal)	—		15,000		(20,354)		20,000
Write-offs	—		—		—		—
Balance, at the end of the period	$	133,524	$	256,349	$	133,524	$	256,349

Inventory

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 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 have impact on 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.

Revenue Recognition

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. Revenue recorded that was included within prior period deferred revenue was $162,000 and $152,000, respectively for the three-month periods ended December 31, 2023 and 2022. Revenue recorded that was included within prior period deferred revenue was $386,000 and $314,000, respectively for six month periods ended December 31, 2023, and 2022.


(in thousands)	Three Months Ended December 31,				Six Months Ended December 31,
	2023		2022		2023		2022
Beginning of Period	$	274	$	274	$	426	$	332
Additions	204		137		276		241
Revenue Recognized	162		152		386		314
End of Period	$	316	$	259	$	316	$	259

Net Income (loss) Per Share

The Company utilizes the two-class method to compute net income per common share. These participating securities included the Company’s convertible preferred stock which accrues dividends payable. The two-class method requires earnings for the period to be allocated between common stock and participating securities based upon their respective rights to receive distributed and undistributed earnings.

Under the two-class method, for periods with net income, basic net income per common share is computed by dividing the net income attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Net income attributable to common stockholders is computed by subtracting from net income the portion of current period earnings that the participating securities would have been entitled to receive pursuant to their dividend rights had all of the period’s earnings been distributed. No such adjustment to earnings is made during periods with a net loss, as the holders of the participating securities have no obligation to fund losses.

Diluted net income per common share is computed under the two-class method by using the weighted average number of shares of common stock outstanding, plus, for periods with net income attributable to common stockholders, the potential dilutive effects of stock options. The Company analyzed the potential dilutive effect of any outstanding dilutive securities under the “if-converted” method and treasury-stock method when calculating diluted earnings per share, in which it is assumed that the outstanding participating securities convert into common stock at the beginning of the period or date of issuance, if later. The Company reports the more dilutive of the approaches (two-class or “if-converted”) as its diluted net income per share during the period. As of December 31, 2023 and 2022, the average market prices for the years 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.


	For the Three Months Ended December 31,			For the Six Months Ended December 31,
		2023		2022		2023		2022
Numerator:
Numerator for basic loss per share:
Net loss		$	(76,321)	$	(6,043)	$	(97,518)	$	(326,767)
Undeclared dividends on preferred stock		13,006		13,006		26,012		26,012
Net loss applicable to common shareholders		$	(89,327)	$	(19,049)	$	(123,530)	$	(352,779)
Numerator for diluted loss per share:
Diluted loss		$	(76,321)	$	(6,043)	$	(97,518)	$	(326,767)
Undeclared dividends on preferred stock		13,006		13,006		26,012		26,012
Net loss applicable to common shareholders		$	(89,327)	$	(19,049)	$	(123,530)	$	(352,779)
Denominator for basic loss per share
Denominator for basic 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		—		—		—		—
Denominator for diluted (loss) assumed conversion		7,415,329		7,415,329		7,415,329		7,415,329
Net loss per share:
Basic net loss per share		$	(0.01)	$	—	$	(0.02)	$	(0.05)
Diluted net loss per share		$	(0.01)	$	—	$	(0.02)	$	(0.05)

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 December 31,		For the Six Months Ended December 31,
	2023	2022	2023	2022
Stock options	157,000	157,000	157,000	157,000
Convertible preferred stock	6,320,407	5,978,287	6,320,407	5,978,287
Total potential dilutive securities not included in loss per share	6,477,407	6,135,287	6,477,407	6,135,287

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 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 December 31, 2023 and June 30, 2023, the Company has recorded a full 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 consolidated statements of operations. As of December 31, 2023, and June 30, 2023, no accrued interest or penalties were required to be included on the related tax liability line in the consolidated balance sheets.

- Definition

Disclosure of accounting policy for income taxes, which may include its accounting policies for recognizing and measuring deferred tax assets and liabilities and related valuation allowances, recognizing investment tax credits, operating loss carryforwards, tax credit carryforwards, and other carryforwards, methodologies for determining its effective income tax rate and the characterization of interest and penalties in the financial statements.

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- Definition

Disclosure of inventory accounting policy for inventory classes, including, but not limited to, basis for determining inventory amounts, methods by which amounts are added and removed from inventory classes, loss recognition on impairment of inventories, and situations in which inventories are stated above cost.

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