UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM10-Q
☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Quarterly Period Ended August 31, 2019.2020.
or
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Transition Period From to
Commission File Number0-13394
VIDEO DISPLAY CORPORATION
(Exact name of registrant as specified on its charter)
GEORGIA | 58-1217564 | |
(State or other jurisdiction of
| (I.R.S. Employer
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1868 TUCKER INDUSTRIAL ROAD, TUCKER, GEORGIA 30084
(Address of principal executive offices)
770-938-2080
(Registrant’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, no par value | VIDE | OTCMKTS |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 31, 2019,2020, the registrant had 5,878,290 shares of Common Stock outstanding.
Video Display Corporation and Subsidiaries
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Balance Sheets (unaudited)
(in thousands)
August 31, 2019 | February 28, 2019 | August 31, 2020 | February 29, 2020 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Assets | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 559 | $ | 410 | $ | 414 | $ | 844 | ||||||||
Trading investments, at fair value | 18 | — | 15 | — | ||||||||||||
Accounts receivable, less allowance for doubtful accounts of $5 and $16 | 666 | 1,746 | ||||||||||||||
Note receivable due from officers and directors (Note 8) | 219 | 209 | ||||||||||||||
Accounts receivable, less allowance for doubtful accounts of $6 and $9 | 1,449 | 1,305 | ||||||||||||||
Notes receivable due from officers and directors (Note 8) | 77 | 189 | ||||||||||||||
Inventories, net | 3,239 | 3,451 | 4,373 | 4,480 | ||||||||||||
Unbilled revenue | 31 | — | ||||||||||||||
Contract assets | 206 | — | ||||||||||||||
Prepaid expenses and other current assets | 98 | 476 | 189 | 411 | ||||||||||||
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Total current assets | 4,830 | 6,292 | 6,723 | 7,229 | ||||||||||||
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Property, plant, and equipment | ||||||||||||||||
Land | 154 | 154 | 154 | 154 | ||||||||||||
Buildings | 2,831 | 2,760 | 2,766 | 2,756 | ||||||||||||
Construction in progress | 106 | 73 | 110 | 106 | ||||||||||||
Machinery and equipment | 5,761 | 5,732 | 4,878 | 4,861 | ||||||||||||
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8,852 | 8,719 | 7,908 | 7,877 | |||||||||||||
Accumulated depreciation and amortization | (7,509 | ) | (7,398 | ) | ||||||||||||
Accumulated depreciation | (6,724 | ) | (6,607 | ) | ||||||||||||
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Net property, plant, and equipment | 1,343 | 1,321 | 1,184 | 1,270 | ||||||||||||
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Right of use assets under operating leases | 1,873 | — | 1,383 | 1,631 | ||||||||||||
Note receivable due from officers and directors, noncurrent (Note 8) | 77 | 189 | ||||||||||||||
Intangible assets, net | 312 | 387 | ||||||||||||||
Other noncurrent assets | 2 | 5 | 2 | 2 | ||||||||||||
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Total assets | $ | 8,125 | $ | 7,807 | $ | 9,604 | $ | 10,519 | ||||||||
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The accompanying notes are an integral part of these interim condensed consolidated statements.
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Balance Sheets (unaudited) (continued)
(in thousands)
August 31, 2019 | February 28, 2019 | August 31, 2020 | February 29, 2020 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||
Current liabilities | ||||||||||||||||
Accounts payable | $ | 1,238 | $ | 1,008 | $ | 1,415 | $ | 1,256 | ||||||||
Accrued liabilities | 342 | 382 | 647 | 499 | ||||||||||||
Current maturities of long-term debt | — | 23 | ||||||||||||||
Customer deposits | 151 | 865 | 1,325 | 2,338 | ||||||||||||
Contract liabilities | 190 | 235 | ||||||||||||||
Notes payable to officers and directors, current (Note 8) | 235 | 325 | ||||||||||||||
Note payable for acquisition | 100 | 100 | ||||||||||||||
Notes payable to officers and directors (Note 8) | 1,269 | 1,216 | ||||||||||||||
Note payable | 100 | 100 | ||||||||||||||
PPP related loans, current | 550 | — | ||||||||||||||
Current operating lease liabilities | 557 | — | 557 | 557 | ||||||||||||
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Total current liabilities | 2,813 | 2,938 | 5,863 | 5,966 | ||||||||||||
PPP related loans, noncurrent | 438 | — | ||||||||||||||
Long-term operating lease liabilities | 1,325 | — | 849 | 1,091 | ||||||||||||
Notes payable to officers and directors, less current maturities (Note 8) | 77 | 189 | ||||||||||||||
Other noncurrent liabilities | 7 | 19 | ||||||||||||||
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Total liabilities | 4,222 | 3,146 | 7,150 | 7,057 | ||||||||||||
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Shareholders’ Equity | ||||||||||||||||
Preferred stock, no par value – 10,000 shares authorized; none issued and outstanding | — | — | — | — | ||||||||||||
Common stock, no par value – 50,000 shares authorized; 9,732 issued and 5,878 outstanding at August 31, 2019 and at February28, 2019 | 7,293 | 7,293 | ||||||||||||||
Common stock, no par value – 50,000 shares authorized; 9,732 issued and 5,878 outstanding at August 31, 2020 and at February 29, 2020 | 7,293 | 7,293 | ||||||||||||||
Additionalpaid-in capital | 277 | 274 | 281 | 281 | ||||||||||||
Retained earnings | 12,615 | 13,376 | 11,162 | 12,170 | ||||||||||||
Treasury stock, shares at cost; 3,854 at August 31, 2019 and February 28, 2019 | (16,282 | ) | (16,282 | ) | ||||||||||||
Treasury stock, shares at cost; 3,854 at August 31, 2020 and February 29, 2020 | (16,282 | ) | (16,282 | ) | ||||||||||||
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Total shareholders’ equity | 3,903 | 4,661 | 2,454 | 3,462 | ||||||||||||
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Total liabilities and shareholders’ equity | $ | 8,125 | $ | 7,807 | $ | 9,604 | $ | 10,519 | ||||||||
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The accompanying notes are an integral part of these interim condensed consolidated statements.
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Statements of Operations (unaudited)
(in thousands, except per share data)
Three Months Ended August 31, | Six Months Ended August 31, | Three Months Ended August 31, | Six Months Ended August 31, | |||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
Net sales | $ | 3,228 | $ | 3,321 | $ | 5,937 | $ | 7,342 | $ | 2,292 | $ | 3,228 | $ | 5,997 | $ | 5,937 | ||||||||||||||||
Cost of goods sold | 2,730 | 2,442 | 5,014 | 5,467 | 2,107 | 2,730 | 4,834 | 5,014 | ||||||||||||||||||||||||
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Gross profit | 498 | 879 | 923 | 1,875 | 185 | 498 | 1,163 | 923 | ||||||||||||||||||||||||
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Operating expenses | ||||||||||||||||||||||||||||||||
Selling and delivery | 147 | 190 | 312 | 438 | 290 | 147 | 496 | 312 | ||||||||||||||||||||||||
General and administrative | 893 | 851 | 1,762 | 1,692 | 976 | 893 | 1,973 | 1,762 | ||||||||||||||||||||||||
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1,040 | 1,041 | 2,074 | 2,130 | 1,266 | 1,040 | 2,469 | 2,074 | |||||||||||||||||||||||||
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Operating loss | (542 | ) | (162 | ) | (1,151 | ) | (255 | ) | (1,081 | ) | (542 | ) | (1,306 | ) | (1,151 | ) | ||||||||||||||||
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Other income (expense) | ||||||||||||||||||||||||||||||||
Interest expense, net | (1 | ) | (8 | ) | (1 | ) | (14 | ) | ||||||||||||||||||||||||
Investment income (loss) | (1 | ) | 108 | 1 | 70 | |||||||||||||||||||||||||||
Interest income (expense), net | (16 | ) | (1 | ) | (31 | ) | (1 | ) | ||||||||||||||||||||||||
Investment gains (losses), net | 4 | (1 | ) | (6 | ) | 1 | ||||||||||||||||||||||||||
Other, net | 109 | 56 | 390 | 248 | 92 | 109 | 335 | 390 | ||||||||||||||||||||||||
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107 | 156 | 390 | 304 | 80 | 107 | 298 | 390 | |||||||||||||||||||||||||
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(Loss) income before income taxes | (435 | ) | (6 | ) | (761 | ) | 49 | |||||||||||||||||||||||||
Loss before income taxes | (1,001 | ) | (435 | ) | (1,008 | ) | (761 | ) | ||||||||||||||||||||||||
Income tax expense | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
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Net (loss) income | $ | (435 | ) | $ | (6 | ) | $ | (761 | ) | $ | 49 | |||||||||||||||||||||
Net loss | $ | (1,001 | ) | $ | (435 | ) | $ | (1,008 | ) | $ | (761 | ) | ||||||||||||||||||||
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Net loss (income) per share-basic and diluted | $ | (.07 | ) | $ | (0.00 | ) | $ | (0.13 | ) | $ | 0.01 | |||||||||||||||||||||
Net loss per share basic | $ | (0.17 | ) | $ | (0.07 | ) | $ | (0.17 | ) | $ | (0.13 | ) | ||||||||||||||||||||
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Net loss per share diluted | $ | (0.17 | ) | $ | (0.07 | ) | $ | (0.17 | ) | $ | (0.13 | ) | ||||||||||||||||||||
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Basic weighted average shares outstanding | 5,878 | 5,880 | 5,878 | 5,880 | 5,878 | 5,878 | 5,878 | 5,878 | ||||||||||||||||||||||||
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Diluted weighted average shares outstanding | 5,878 | 5,880 | 5,878 | 6,080 | 5,878 | 5,878 | 5,878 | 5,878 | ||||||||||||||||||||||||
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The accompanying notes are an integral part of these interim condensed consolidated statements.
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated StatementStatements of Shareholders’ Equity
Three and Six Months Ended August 31, 2020 and 2019 (unaudited)
(in thousands)
Common Shares | Share Amount | Additional Paid-in Capital | Retained Earnings | Treasury Stock | Total | |||||||||||||||||||
For the Three Months Ended August 31, 2019 |
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Balance, May 31, 2019 (unaudited) | 5,878 | $ | 7,293 | $ | 276 | $ | 13,050 | $ | (16,282 | ) | $ | 4,337 | ||||||||||||
Net loss | — | — | — | (435 | ) | — | (435 | ) | ||||||||||||||||
Treasury stock purchase | — | — | — | — | — | — | ||||||||||||||||||
Share based compensation | — | — | 1 | — | — | 1 | ||||||||||||||||||
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Balance, August 31, 2019 (unaudited) | 5,878 | $ | 7,293 | $ | 277 | $ | 12,615 | $ | (16,282 | ) | $ | 3,903 | ||||||||||||
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For the Six Months Ended August 31, 2019 |
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Balance, February 28, 2019 (audited) | 5,878 | $ | 7,293 | $ | 274 | $ | 13,376 | $ | (16,282 | ) | $ | 4,661 | ||||||||||||
Net loss | — | — | — | (761 | ) | — | (761 | ) | ||||||||||||||||
Treasury stock purchase | — | — | — | — | — | — | ||||||||||||||||||
Share based compensation | — | — | 3 | — | — | 3 | ||||||||||||||||||
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Balance, August 31, 2019 (unaudited) | 5,878 | $ | 7,293 | $ | 277 | $ | 12,615 | $ | (16,282 | ) | $ | 3,903 | ||||||||||||
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For the Three Months Ended August 31, 2018 |
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Balance, May 31, 2018 (unaudited) | 5,878 | $ | 7,293 | $ | 259 | $ | 13,364 | $ | (16,282 | ) | $ | 4,634 | ||||||||||||
Net loss | — | — | — | (6 | ) | — | (6 | ) | ||||||||||||||||
Treasury stock purchase | — | — | — | — | — | — | ||||||||||||||||||
Share based compensation | — | — | 6 | — | — | 6 | ||||||||||||||||||
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Balance, August 31, 2018 (unaudited) | 5,878 | $ | 7,293 | $ | 265 | $ | 13,358 | $ | (16,282 | ) | $ | 4,634 | ||||||||||||
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For the Six Months Ended August 31, 2018 |
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Balance, February 28, 2018 (audited) | 5,887 | $ | 7,293 | $ | 256 | $ | 13,309 | $ | (16,272 | ) | $ | 4,586 | ||||||||||||
Net income | — | — | — | 49 | — | 49 | ||||||||||||||||||
Treasury stock purchase | (9 | ) | — | — | — | (10 | ) | (10 | ) | |||||||||||||||
Share based compensation | — | — | 9 | — | — | 9 | ||||||||||||||||||
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Balance, August 31, 2018 (unaudited) | 5,878 | $ | 7,293 | $ | 265 | $ | 13,358 | $ | (16,282 | ) | $ | 4,634 | ||||||||||||
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Common Shares* | Share Amount | Additional Paid-in Capital | Retained Earnings | Treasury Stock | Total Shareholders’ Equity | |||||||||||||||||||
For the Three Months Ended August 31, 2020 | ||||||||||||||||||||||||
Balance, May 31, 2020 (unaudited) | 5,878 | $ | 7,293 | $ | 281 | $ | 12,163 | $ | (16,282 | ) | $ | 3,455 | ||||||||||||
Net loss | — | — | — | (1,001 | ) | — | (1,001 | ) | ||||||||||||||||
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Balance, August 31, 2020 (unaudited) | 5,878 | $ | 7,293 | $ | 281 | $ | 11,162 | $ | (16,282 | ) | $ | 2,454 | ||||||||||||
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For the Six Months Ended August 31, 2020 | ||||||||||||||||||||||||
Balance, February 29, 2020 (audited) | 5,878 | $ | 7,293 | $ | 281 | $ | 12,170 | $ | (16,282 | ) | $ | 3,462 | ||||||||||||
Net loss | — | — | (1,008 | ) | — | (1,008 | ) | |||||||||||||||||
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Balance, August 31, 2020 (unaudited) | 5,878 | $ | 7,293 | $ | 281 | $ | 11,162 | $ | (16,282 | ) | $ | 2,454 | ||||||||||||
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For the Three Months Ended August 31, 2019 | ||||||||||||||||||||||||
Balance, May 31, 2019 (unaudited) | 5,878 | $ | 7,293 | $ | 276 | $ | 13,050 | $ | (16,282 | ) | $ | 4,337 | ||||||||||||
Net loss | — | — | — | (435 | ) | — | (435 | ) | ||||||||||||||||
Share based compensation | — | — | 1 | — | — | 1 | ||||||||||||||||||
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Balance, August 31, 2019 (unaudited) | 5,878 | $ | 7,293 | $ | 277 | $ | 12,615 | $ | (16,282 | ) | $ | 3,903 | ||||||||||||
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For the Six Months Ended August 31, 2019 | ||||||||||||||||||||||||
Balance, February 28, 2019 (audited) | 5,878 | $ | 7,293 | $ | 274 | $ | 13,376 | $ | (16,282 | ) | $ | 4,661 | ||||||||||||
Net loss | — | — | (761 | ) | — | (761 | ) | |||||||||||||||||
Share based compensation | — | — | 3 | — | — | 3 | ||||||||||||||||||
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Balance, August 31, 2019 (unaudited) | 5,878 | $ | 7,293 | $ | 277 | $ | 12,615 | $ | (16,282 | ) | $ | 3,903 | ||||||||||||
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* | Common shares are shown net of Treasury Shares |
The accompanying notes are an integral part of these interim condensed consolidated statements.
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
Six Months Ended August 31, | Six Months Ended August 31, | |||||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||
Operating Activities | ||||||||||||||||
Net (loss) income | $ | (761 | ) | $ | 49 | |||||||||||
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: | ||||||||||||||||
Depreciation and amortization | 112 | 138 | ||||||||||||||
Net loss | $ | (1,008 | ) | $ | (761 | ) | ||||||||||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||||||||||
Depreciation expense | 117 | 112 | ||||||||||||||
Amortization of intangible assets | 75 | — | ||||||||||||||
Provision for doubtful accounts | (11 | ) | — | (3 | ) | (11 | ) | |||||||||
Provision for inventory reserve | 25 | 165 | 30 | 25 | ||||||||||||
Non-cash charge for share based compensation | 3 | 9 | — | 3 | ||||||||||||
Deferred rental income | — | (60 | ) | |||||||||||||
Realized/unrealized gain on investments | (1 | ) | (40 | ) | ||||||||||||
Realized/unrealized loss (gain) on investments | 6 | (1 | ) | |||||||||||||
Other | (3 | ) | 1 | 11 | (3 | ) | ||||||||||
Changes in working capital items: | ||||||||||||||||
Accounts receivable | 1,091 | (1,113 | ) | (141 | ) | 1,091 | ||||||||||
Inventories | 187 | 62 | 77 | 187 | ||||||||||||
Prepaid expenses and other assets | 381 | 27 | 222 | 381 | ||||||||||||
Contract assets | (206 | ) | — | |||||||||||||
Customer deposits | (714 | ) | (112 | ) | (1,013 | ) | (759 | ) | ||||||||
Accounts payable and accrued liabilities | 190 | 173 | 307 | 190 | ||||||||||||
Unbilled revenue | (31 | ) | — | — | (31 | ) | ||||||||||
Contract liabilities | (45 | ) | (41 | ) | ||||||||||||
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Net cash provided by (used in) operating activities | 423 | (742 | ) | |||||||||||||
Net cash (used in) provided by operating activities | (1,526 | ) | 423 | |||||||||||||
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Investing Activities | ||||||||||||||||
Capital expenditures | (134 | ) | (17 | ) | (31 | ) | (134 | ) | ||||||||
Purchases of investments | (17 | ) | (981 | ) | (47 | ) | (17 | ) | ||||||||
Proceeds from the sales of investments | — | 1,168 | ||||||||||||||
Proceeds from the sales of investment in real estate partnership-related party (Note 8) | — | 166 | ||||||||||||||
Proceeds from sale of investments | 24 | — | ||||||||||||||
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Net cash (used in) provided by investing activities | (151 | ) | 336 | |||||||||||||
Net cash used in investing activities | (54 | ) | (151 | ) | ||||||||||||
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Financing Activities | ||||||||||||||||
Proceeds from related party loans | — | 287 | ||||||||||||||
Repayments of notes payable to officers and directors | (35 | ) | — | |||||||||||||
Proceeds from loans with officers and directors | 200 | — | ||||||||||||||
Repayments of long-term debt | (123 | ) | (27 | ) | — | (123 | ) | |||||||||
Proceeds from line of credit | — | 184 | ||||||||||||||
Purchase of treasury stock | — | (10 | ) | |||||||||||||
Payments on marginal float | — | (96 | ) | |||||||||||||
Proceeds from PPP related loans | 988 | — | ||||||||||||||
Marginal float net changes | (3 | ) | — | |||||||||||||
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Net cash (used in) provided by financing activities | (123 | ) | 338 | |||||||||||||
Net cash provided by (used in) financing activities | 1,150 | (123 | ) | |||||||||||||
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Net change in cash and cash equivalents | 149 | (68 | ) | (430 | ) | 149 | ||||||||||
Cash and cash equivalents, beginning of year | 410 | 81 | 844 | 410 | ||||||||||||
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Cash and cash equivalents, end of period | $ | 559 | $ | 13 | $ | 414 | $ | 559 | ||||||||
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The accompanying notes are an integral part of these interim condensed consolidated statements.
Video Display Corporation and Subsidiaries
August 31, 20192020
Note 1. – SummaryBasis of Significant Accounting PoliciesPresentation of Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements include the accounts of Video Display Corporation, Inc. and its subsidiaries (“Video Display,” the “Company,” “we,” or “us”). All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying condensed consolidated balance sheet as of February 28, 201929, 2020 has been derived from audited financial statements. The accompanying unaudited condensed consolidated financial statements as of August 31, 2020, and for the three and six months ended, August 31, 20192020 and 20182019 have been prepared in accordance with (i) accounting principles generally accepted in the U.S. for interim financial information and (ii) the instructions to Form10-Q and Rule10-01 of RegulationS-X of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, such statements do not include all of the information and disclosures required by accounting principles generally accepted in the U.S. for a complete presentation of financial statements. In the opinion of management, all adjustments (including those of a normal, recurring nature) considered necessary for a fair presentation have been included. Operating results for the three and six months ended August 31, 20192020 are not necessarily indicative of the results that may be expected for the year ending February 29, 2020.28, 2021. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Video Display’s Annual Report on Form10-K for the year ended February 28, 201929, 2020 filed with the SEC on May 29, 2019.2020.
Note 2. – Banking & Liquidity
The accompanying unaudited interim condensed consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company reported a net loss for the period ending August 31, 2019 but2020 and had an increasea decrease in working capital and liquid assets for the comparable six month fiscal 2020 period. Working capital decreased due toperiod primarily as a result of $1.0 million loss in the adoption of Topic 842 (see discussion in Note 4) whereby lease liabilities were recognized for lease obligations. While the liabilities are reflected in both current andnon-current liabilities, the corresponding leaseright-of-use assets are solely reflected innon-current assets. The current lease liability recognized as of August 31, 2019 was approximately $557 thousand.second quarter. The Company has sustained losses for the last threefour of fourfive fiscal years and has seen overall a decline in working capital and liquid assets during this fourfive year period. Annual losses over this time are due to a combination of decreasing revenues across certain divisions without a commensurate reduction of expenses. The Company has seen a rise in the backlog for customer orders and increased activity within the markets it serves. The Company’s working capital and liquid asset position are presented below (in thousands) as of August 31, 20192020 and February 28, 2019:29, 2020:
August 31, 2019 | February 28, 2019 | August 31, 2020 | February 29, 2020 | |||||||||||||
Working capital | $ | 2,017 | $ | 3,354 | $ | 860 | $ | 1,263 | ||||||||
Liquid assets | $ | 577 | $ | 410 | $ | 429 | $ | 844 |
Management has implemented a plan to improve the liquidity of the Company. The Company has been fulfillingimplementing a plan to increase revenues at all the divisions, each structured to the particular division. The fiscal year ended February 29, 2020 was a transition year for the Company. Many of the legacy programs the Company has expanded its cyber security business by adding a second testing chamber for testing tempest products allowing it to increaseserviced were heading into new phases or the business in cyber testing services to supplementnext generation of the product sideline. This caused delays in the normal flow of the business. The Company received its first orderorders for these services in its second quarter of fiscal 2020 and expects this business to grow as the year progresses.programs. The Company is also now involvedworking with these customers and expects these programs to be placing orders to be fulfilled in ruggedized displays. Each division is exploring opportunities structuredthis fiscal year. Also, the Company completed the transfer of its remaining CRT operations to their particular divisionits Lexel Imaging facility in Lexington, KY in fiscal 2021 which has resulted in an increasewill reduce expenses in the growth in revenues for the last fiscal year and is expected to increase revenues this year.CRT operation by having that business all under one roof. The Company has reduced other expenses at the divisions, as well as atalso moved the corporate accounting functions to the Cocoa, Florida location within fiscal 2020 which allows the expectation that further decreases can be achieved. The Company has completed the merger of the two Florida businesses into one facilityto become more efficient and the relocation of Lexel Imaging into a new facility. These changes are projected to realize annual savings through reduced expenses.save money on reducing redundant operations. Management continues to explore options to monetize certain long-term assetsincrease the liquidity of the business.Company. If additional and more permanent capital is required to fund the operations of the Company, no assurance can be given that the Company will be able to obtain the capital on terms favorable to the Company, if at all.
Video Display Corporation and Subsidiaries
August 31, 2019
The ability of the Company to continue as a going concern is dependent upon the success of management’s plans to improve revenues, the operational effectiveness of continuing operations, the procurement of suitable financing, or a combination of these. The uncertainty regarding the potential success of management’s plan create substantial doubt about the ability of the Company to continue as a going concern.
Video Display Corporation and Subsidiaries
August 31, 2020
Note 3. – Fair Value Measurements and Financial Instruments
The Financial Accounting Standards Board’s (FASB’s) fair value measurement guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:
Level 1 | Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. | |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Assets measured at fair value on a recurring basis by the Company consist of investment securities held for trading using Level 1 inputs. The following table sets forth financial assets and liabilities that were accounted for at fair value on a recurring basis as of August 31, 20192020 (in thousands):
August 31, 2019 | Level 1 Assets and Liabilities | Level 2 Assets and Liabilities | Level 3 Assets and Liabilities | August 31, 2020 | Level 1 Assets and Liabilities | Level 2 Assets and Liabilities | Level 3 Assets and Liabilities | |||||||||||||||||||||||||
Current trading investments: | ||||||||||||||||||||||||||||||||
Stocks, options and ETF (long) | 28 | 28 | — | — | $ | 15 | $ | 15 | ||||||||||||||||||||||||
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Total value of investments | $ | 28 | $ | 28 | — | — | 15 | 15 | — | — | ||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||||||
Margin balance | (10 | ) | (10 | ) | — | — | ||||||||||||||||||||||||||
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Total value of liabilities | (10 | ) | (10 | ) | — | — | ||||||||||||||||||||||||||
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Total | $ | 18 | $ | 18 | — | — | $ | 15 | $ | 15 | — | — | ||||||||||||||||||||
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As presented in the table above, theThe Company had $10 thousandzero balance on outstanding margin account borrowing as of August 31, 2019. No amounts were outstanding2020 and none as of February 28, 2019.29, 2020. The margin account borrowings are used to purchase marketable equity securities and are netted against the investments in the balance sheet to show net trading investments. The gross investments were $28$15.0 thousand leaving net investments of $18$15.0 thousand after theno margin account borrowings of $10 thousand at August 31, 2019.2020. The margin interest rate is 4.25%.1.50% at August 31, 2020. No investments were held at February 29, 2020.
The Company’s financial instruments which are not measured at fair value on the condensed consolidated balance sheets include cash, accounts receivable, short-term liabilities, and debt. The estimated fair value of these financial instruments approximate cost due to the short period of time to maturity. Recorded amounts of long-term debt are considered to approximate fair value due to either rates that fluctuate with the market or are otherwise commensurate with the current market.
Video Display Corporation and Subsidiaries
August 31, 20192020
Note 4. – Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
Effective March 1, 2019,2020 we adopted Accounting Standards Update (“ASU”)No. 2016-02,2018-13,Leases Fair Value Measurement. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 842)820-10): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”),as which changes the fair value measurement disclosure requirements of ASC Topic 820, Fair Value Measurements and Disclosures. Under this ASU, certain disclosure requirements for fair value measurements are eliminated, amended byor added. These changes aim to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing the disclosures. The guidance is effective for the Company beginning on March 1, 2020 and prescribes different transition methods for the various provisions. The adoption of ASU2018-01,Leases (Topic 842) – Land Easement Practical Expedient for Transition to Topic 842, ASU2018-10, Codification Improvements to Topic 842, ASU2018-11,Leases (Topic 842) – Targeted Improvements,ASU2018-20,Leases (Topic 842) – Narrow-Scope Improvements for Lessors, andASU2019-01,Leases (Topic 842) – Codification Improvements, (collectively, the new leases standard or Topic 842). The new standard established aright-of-use2018-13 (“ROU”) model that required lessees to record ROU assets and lease obligationsdid not have a material impact on the balance sheetCompany’s financial statements and disclosures.
Recent Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for all leases with terms longer than 12 months.
We adopted Topic 842 in first quarter fiscal 2020 usingIncome Taxes (“ASU 2019-12”), which simplifies the modified retrospective method and utilized the optional transition method under which we continue to apply the legacy guidance in ASC 840,Leases, including its disclosure requirements, in the comparative period presented. Therefore, the adjustment to recognize the Company’s leases on the balance sheetaccounting for income taxes by removing certain exceptions related to the adoptionapproach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new ASU also simplifies aspects of the new standard was recorded asaccounting for franchise taxes and enacted changes in tax laws or rates. These changes aim to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing the adoption datedisclosures. The guidance is effective for the Company beginning on March 1, 2021 and prior periods wereprescribes different transition methods for the various provisions. The Company does not restated.
As part ofexpect the adoption of Topic 842, we electedASU 2019-12 to adopt certainhave a material impact on its financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the optional practical expedients, including the package of practical expedients, which, among other things, gives us the option to not reassess: 1) whether expired or existing contracts are or contain leases; 2) the lease classification for expired or existing leases;measurement and 3) initial direct costs for existing leases. We also elected the practical expedient to not separate lease andnon-lease components, which allows us to account for lease andnon-lease components as a single lease component. We did not elect the hindsight practical expedient in our determination of the lease term for existing leases; therefore, the original lease terms, as determined under ASC 840, were used in the calculation of the Company’s initial Topic 842 lease liabilities.
Adoption of the new standard resulted in the recognition of operating leaseexpected credit losses for financial assets and operating lease liabilitiesheld at amortized cost, including trade receivables. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model that requires the use of approximately $2.1 million as of March 1, 2019.forward-looking information to calculate credit loss estimates. This guidance is effective for annual reporting periods beginning after December 15, 2022 for smaller reporting companies, with early adoption permitted. Entities will apply the amendments using a modified retrospective approach. The Company does not expect the adoption of this standard did notASU 2016-13 to have ana material impact on retained earnings, the consolidatedits financial statements of operations or the consolidated statements of cash flows.and related disclosures.
Note 5. – Inventories
Inventories are stated at the lower of cost (first in, first out) or market and consisted of the following (in thousands):
August 31, | February 28, | |||||||||||||||
2019 | 2019 | August 31, 2020 | February 29, 2020 | |||||||||||||
Raw materials | $ | 2,947 | $ | 2,973 | $ | 3,675 | $ | 3,497 | ||||||||
Work-in-process | 476 | 706 | 627 | 773 | ||||||||||||
Finished goods | 700 | 631 | 897 | 1,006 | ||||||||||||
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4,123 | 4,310 | 5,199 | 5,276 | |||||||||||||
Reserves for obsolescence | (884 | ) | (859 | ) | (826 | ) | (796 | ) | ||||||||
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$ | 3,239 | $ | 3,451 | $ | 4,373 | $ | 4,480 | |||||||||
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Video Display Corporation and Subsidiaries
August 31, 20192020
Note 6. – LinePaycheck Protection Promissory (“PPP”) Related Loans
On April 13, 2020 our Lexel Imaging subsidiary entered into a $216,200 Paycheck Protection Promissory Note (the “PPP Loan”) with the Central Bank and on April 23, 2020, Video Display Corporation entered into a $772,000 PPP Loan with the Renasant Bank. The PPP Loans were made under, and are subject to the terms and conditions of, Creditthe PPP which was established under the CARES Act and Long-Term Debt
is administered by the U.S. Small Business Administration. The current terms of the loans are two years with maturity dates of April 13, 2022 and April 23, 2022 and they contain a fixed annual interest rate of 1.00%. Payments of principle and interest on the PPP Loans will be deferred for the first six months of the term of the PPP Loans until October 13, 2020 and October 23, 2020, respectively. Principle and interest are payable monthly and may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Under the terms of the CARES Act, recipients can apply for and receive forgiveness for all, or a portion of the loans granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs, mortgage interest, rent or utility costs (collectively, “Qualifying Expenses”), and on the maintenance of employee and compensation levels during a certain time period following the funding of the PPP Loans. The Company has been using the proceeds of the PPP Loans for Qualifying Expenses. However, no assurance is provided that the Company will be able to obtain forgiveness of the PPP Loans in whole or in part. As of August 31, 2020, $550 thousand of the total $988 thousand in PPP related loans is classified as a $0.5 million line of credit with the Brand Banking Company with no balance outstandingcurrent liability on the line at August 31, 2019. The line matures on October 15, 2019, is personally guaranteed by the Chief Executive Officer and has an interest rate of LIBOR plus 3.75%. The loan has no financial covenants.condensed consolidated balances sheets.
Long-term debt consisted of the following (in thousands):
August 31, | February 28, | |||||||
2019 | 2019 | |||||||
Mortgage payable to bank; interest rate at BB&T Bank base rate plus 0.5% (6% as of February 28, 2019); monthly principal and interest payments through July 2019; collateralized by land and building of Teltron Technologies, Inc. Loan paid in full as of August 31, 2019. | $ | — | $ | 23 | ||||
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— | 23 | |||||||
Less current maturities | — | (23 | ) | |||||
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$ | — | $ | — | |||||
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Note 7. – Leases
The Company leases its office space and manufacturing facilities under operating lease agreements. The base lease terms expire at various dates from 2022 to 2025. While each of the leases include renewal options, the Company has only included the base lease term in its calculation of lease assets and liabilities. The Company does not have any finance leases.
Balance sheet information related to operating leases is as follows (in thousands):
August 31, 2019 | August 31, 2020 | |||||||
Assets |
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Operating leaseright-of-use assets | $ | 1,873 | $ | 1,383 | ||||
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Liabilities |
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Current portion of operating lease liabilities | $ | 557 | $ | 557 | ||||
Noncurrent portion of operating lease liabilities | 1,325 | 849 | ||||||
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Total operating lease liabilities | $ | 1,882 | $ | 1,406 | ||||
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Operating lease costs are included in Costcost of goods sold in the Company’s condensed consolidated statements of operations and totaled approximately $147 thousand for the three months ended August 31, 20192020 and $294$293 thousand for the six months ended August 31, 2019.2020. The Company did not have any variable lease costs orhad $7 thousand of short term lease costs for the three and six months ended August 31, 2019.2020. Operating lease costcosts were $157$147 thousand for the three months ended August 31, 20182019 and $329$293 thousand for the six months ended August 31, 2018.2019.
Cash paid for amounts included in the measurement of operating lease liabilities was approximately $143 thousand and $286 thousand during the three months ended August 31, 2019 and $286 thousand for the six months ended August 31, 2020 and 2019. The Company did not modify any existing leases or execute any new leases during the six months ended August 31, 2019.2020.
Video Display Corporation and Subsidiaries
August 31, 20192020
Weighted average information associated with the measurement of the Company’s remaining operating lease obligations is as follows:
August 31, 2020 | ||||
Weighted average remaining lease term | ||||
Weighted average discount rate | 6% | |||
The following table summarizes the maturity of the Company’s operating lease liabilities as of August 31, 20192020 (in thousands):
FY2020 | 286 | |||||||
FY2021 | 573 | $ | 295 | |||||
FY2022 | 618 | 618 | ||||||
FY2023 | 263 | 263 | ||||||
FY2024 | 190 | 190 | ||||||
Thereafter | 185 | |||||||
FY2025 | 185 | |||||||
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Total operating lease payments | 2,115 | 1,551 | ||||||
Less imputed interest | (233 | ) | (145 | ) | ||||
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Total operating lease liabilities | $ | 1,882 | $ | 1,406 | ||||
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Included above are leases for manufacturing and warehouse facilities leased from Southeast Metro Savings, LLCthe Company’s chief executive officer and HoneyhillOrdway Properties, LLC (entities(an entity in which are controlled by ourthe chief executive officer)officer has an ownership interest in) under operating leases expiring at various dates through 2025. Lease costs under these leases totaled approximately $97 thousand for the three months ended August 31, 2019 and $194 thousand for the six months ended August 31, 20192020 (which is included in the total lease costs of $293 thousand noted above). Lease costs were also $97 thousand for the three months and $194 thousand for the six months ended August 31, 2019.
The Company subleases certain of its warehousing space and also leases a building that it owns in Pennsylvania. The sublease expires concurrently with the head lease in March 2022. The Pennsylvania building was sold in September 2020 as disclosed in Note 13. The chart below was modified due to this sale.
Sublease income and lease income are included in Other income, net in the Company’s condensed consolidated statements of operations and totaled approximately $90,000$91 thousand for the three months ended August 31, 2019 and $180,000$181 thousand for the six months ended August 31, 2020 and $90 thousand $180 thousand for the comparable periods in 2019. Future remaining lease payments expected to be received as of August 31, 20192020 are as follows (in thousands):
FY2020 | $ | 179 | ||||||
FY2021 | 364 | $ | 91 | |||||
FY2022 | 370 | 144 | ||||||
FY2023 | 238 | 12 | ||||||
FY2024 | 113 | |||||||
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Total | $ | 1,264 | $ | 247 | ||||
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Note 8. – RelatedNotes Receivable and Payable to Officers and Directors (Related Party TransactionsTransactions)
On March 30, 2016, the Company entered into an assignment with recourse of the note receivable fromZ-Axis Inc.(Z-Axis) with Ronald D. Ordway, CEO, and Jonathan R. Ordway, related parties, for the sum of $912 thousand. The note receivable is collateralized by a security interest in the shares ofZ-Axis as well as a personal guaranty of its majority shareholder.Z-Axis is current on all scheduled payments regarding this note. The Company retains the right to repurchase the note at any time for 80% of the outstanding principle balance. Also, in the event of default byZ-Axis, the Company is obligated to repurchase the note for 80% of the remaining principle balance plus any accrued interest. Accordingly, the Company has recognized this transaction as a secured borrowing. The $ 0.9 million, 9% interest rate, note originated on
Video Display Corporation and Subsidiaries
August 31, 2020
March 30, 2016, with payments beginning on April 16, 2016 and continuing for 56 months thereafter. The balance of the note was $296$77 thousand, with $219 thousandall classified as current (related party note receivable and related party note payable) as of August 31, 20192020 and $398$189 thousand, with $209 thousandall classified as current as of February 28, 2019,29, 2020, respectively.
Video Display Corporation and Subsidiaries
August 31, 2019
For the six months ending August 31, 2019,In January 2020, to assist the Company owed $16 thousand toin funding the debt assumed resulting from the acquisition of Jaco Displays, LLC, the Company borrowed $505,180 from Ronald D. Ordway, CEO, comprised of cash proceeds received of $148,330 with the remaining $356,850 in debt assumed as the CEO personally funded certain liabilities resulting from the acquisition. The Company combined this amount borrowed with another $438,832 owed to Mr. Ordway in back rent along with $82,838 from previous borrowings, and signed a promissory note for the aggregate balance of $1,026,850 at a six percent interest rate due on or before July 24, 2020 with Mr. Ordway. The Company made a $35,000 payment to Mr. Ordway in March, 2020, and borrowed another $200,000 in August, 2020 leaving a balance of $1,191,850 at August 31, 2020. This note balance is therefore classified as a current liability on the consolidated balance sheet. As disclosed in Note 13, this note with Mr. Ordway was paid in full by the Company for funds borrowed during the previous fiscal year 2019. This is anon-interest bearing loan as repayment is expected in the short-term. September 2020.
See Note 7 for a discussion of leases with related parties.
On July 3, 2017, the Company and Ordway Properties, LLC purchased Honeyhill Properties, LLC which is the owner of the building at 510 Henry Clay Blvd. in Lexington, KY for $1,500,000. Video Display Corporation invested $500,000 towards the purchase price and accounted for the investment under the cost method since Ordway Properties, LLC was the majority owner. During the period ending November 30, 2017 the Company reduced its share in the LLC by $125,000, selling to Ordway Properties, LLC. In addition, during the period ending August 31, 2018, the Company’s sold its remaining $375,000 ownership interest to Ordway Properties, LLC receiving $166,457 in cash and $208,543 in forgiveness of rent that was accrued and owed. There was no gain or loss on the sale.
Note 9. – Supplemental Cash Flow Information
Supplemental cash flow information is as follows (in thousands):
Six Months | ||||||||
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Interest | $ | 1 | $ | 13 | ||||
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Imputed interest income | $ | 16 | (25 | ) | ||||
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Note receivable paid directly to officer (Z- Axis; Note 8) | $ | 112 | $ | 102 | ||||
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Note payable to officer (Z-Axis; Note 8) | $ | 112 | $ | 102 | ||||
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Imputed interest income | $ | 6 | $ | 16 | ||||
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Note 10. – Shareholder’sShareholders’ Equity
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding during each period. Shares issued during the period are weighted for the portion of the period that they were outstanding. Diluted earnings (loss) per share is calculated in a manner consistent with that of basic earnings (loss) per share while giving effect to all potentially dilutive common shares that were outstanding during the period.
Video Display Corporation and Subsidiaries
August 31, 20192020
The following table sets forth the computation of basic and diluted earnings (loss) per share for the three-month and six month periods ended August 31, 20192020 and 20182019 (in thousands, except per share data):
Weighted | Net Loss | Weighted Average Common Shares Outstanding | Loss Per Share | |||||||||||||||||||||
Three months ended August 31, 2020 | ||||||||||||||||||||||||
Basic | $ | (1,001 | ) | 5,878 | $ | (0.17 | ) | |||||||||||||||||
Effect of dilution: | ||||||||||||||||||||||||
Options | — | — | — | |||||||||||||||||||||
Average | Earnings (Loss) |
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Diluted | $ | (1,001 | ) | 5,878 | $ | (0.17 | ) | |||||||||||||||||
Income (Loss) | Outstanding | Share |
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Three months ended August 31, 2019 | ||||||||||||||||||||||||
Basic | $ | (435 | ) | 5,878 | $ | (0.07 | ) | $ | (435 | ) | 5,878 | $ | (0.07 | ) | ||||||||||
Effect of dilution: | ||||||||||||||||||||||||
Options | — | — | — | — | — | — | ||||||||||||||||||
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Diluted | $ | (435 | ) | 5,878 | $ | (0.07 | ) | $ | (435 | ) | 5,878 | $ | (0.07 | ) | ||||||||||
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Net Loss | Weighted Average Common Shares Outstanding | Loss Per Share | ||||||||||||||||||||||
Six months ended August 31, 2020 | ||||||||||||||||||||||||
Basic | $ | (6 | ) | 5,880 | $ | (0.00 | ) | $ | (1,008 | ) | 5,878 | $ | (0.17 | ) | ||||||||||
Effect of dilution: | ||||||||||||||||||||||||
Options | — | — | — | — | — | — | ||||||||||||||||||
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Diluted | $ | (6 | ) | 5,880 | $ | (0.00 | ) | $ | (1,008 | ) | 5,878 | $ | (0.17 | ) | ||||||||||
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Net | Common Shares | Per | ||||||||||||||||||||||
Income (Loss) | Outstanding | Share |
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Six months ended August 31, 2019 | ||||||||||||||||||||||||
Basic | $ | (761 | ) | 5,878 | $ | (0.13 | ) | $ | (761 | ) | 5,878 | $ | (0.13 | ) | ||||||||||
Effect of dilution: | ||||||||||||||||||||||||
Options | — | — | — | — | — | — | ||||||||||||||||||
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Diluted | $ | (761 | ) | 5,878 | $ | (0.13 | ) | $ | (761 | ) | 5,878 | $ | (0.13 | ) | ||||||||||
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Basic | $ | 49 | 5,880 | $ | 0.01 | |||||||||||||||||||
Effect of dilution: | ||||||||||||||||||||||||
Options | — | 200 | — | |||||||||||||||||||||
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Diluted | $ | 49 | 6,080 | $ | 0.01 | |||||||||||||||||||
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Stock options, debentures, and other liabilities convertible into 200,000 shares, of the Company’s common stock were anti-dilutive and, therefore, were excluded from the three and six months ended August 31, 2019,2020 and for the three months ended August 31, 2018,2019 diluted earnings (loss) per share calculations.
Stock-Based Compensation Plans
For thesix-month period ended August 31, 2020, there was no expense related to share-based compensation as all options were fully vested. For the period ended August 31, 2019, and 2018, the Company recognized general and administrative expenses of $3 thousand and $9 thousand, respectively, related to share-based compensation. As of
Video Display Corporation and Subsidiaries
August 31, 2019, and August 31, 2018, total unrecognized compensation costs related to stock options granted was $4 thousand and $16 thousand, respectively. The unrecognized stock option compensation cost is expected to be recognized over a period of approximately 1 year.2020
The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model, which requires the Company to estimate the expected term of the stock option grants and expected future stock price volatility over the term. The term represents the expected period of time the Company believes the options will remain outstanding based on historical information. Estimates of expected future stock price volatility are based on the historic volatility of the Company’s common stock, which represents the standard deviation of the differences in the weekly stock closing price, adjusted for dividends and stock splits.
Video Display Corporation and Subsidiaries
August 31, 2019
No options were granted for the six month period ending August 31, 20192020 or for the six month period ended August 31, 2018.2019.
Stock Repurchase Program
The Company has a stock repurchase program, pursuant to which it had been authorized to repurchase up to 2,632,500 shares of the Company’s common stock in the open market. On January 20, 2014, the Board of Directors of the Company approved aone-time continuation of the stock repurchase program, and authorized the Company to repurchase up to 1,500,000 additional shares of the Company’s common stock in the open market. There is no minimum number of shares required to be repurchased under the program.
For the six months ending August 31, 2020 and August 31, 2019, the Company did not purchase any shares of the Video Display Corporation stock. The Company repurchased 8,858 shares at an average cost of $1.12 per share and for the six months ending August 31, 2018. Under the Company’s stock repurchase program, an additional 490,186 shares remain authorized to be repurchased by the Company at August 31, 2019.2020.
Note 11. – Income Taxes
Due to the Company’s overall and historical net loss position, no income tax expense was reported for the six month period ending August 31, 20192020 and August 31, 2018.2019. Due to continued losses reported by the Company, a full valuation allowance washas been allocated to the deferred tax asset created by these losses.
Note 12. – Legal Proceedings
The Company is involved in various legal proceedings related to claims arising in the ordinary course of business.
Note 13. – Subsequent Events
The Company is not currently a partysold its Pennsylvania owned building in September 2020 with net proceeds of $2.028 million after commissions and closing costs. The funds were used to any legal proceedingspay back the result of which management believes is likely to have a material adverse impact on its business, financial position, results of operation or cash flows.note payable with the CEO as disclosed in Note 8 and for working capital needs.
Video Display Corporation and Subsidiaries
August 31, 20192020
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached unaudited interim condensed consolidated financial statements and with the Company’s 20192020 Annual Report to Shareholders, which included audited condensed consolidated financial statements and notes thereto as of and for the fiscal year ended February 28, 2019,29, 2020, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
The Company manufactures and distributes a wide range of display devices, encompassing, among others, industrial, military, medical, and simulation display solutions. The Company is comprised of one segment—segment - the manufacturing and distribution of displays and display components. The Company is organized into fivefour interrelated operations aggregated into one reportable segment.
Simulation and Training Products – offers a wide range of projection display systems for use in training and simulation, military, medical, entertainment and industrial applications.
Cyber Secure Products –offers advanced TEMPEST technology, and (EMSEC) products. This business also provides various contract services including the design and testing solutions for defense and niche commercial uses worldwide.
Data DisplayCRTs– offers a wide range of CRTs for use in data display screens, including computer terminal monitors and medical monitoring equipment.
Broadcast and Control Center Products –offershigh-end visual display products for use in video walls and command and control centers.
Other Computer Products – offers a variety of keyboard products.
During fiscal 2020,2021, management of the Company is focusing key resources on strategic efforts to grow its business through internal sales of the Company’s more profitable product lines and reduce expenses in all areas of the business to bring its cost structure in line with the current size of the business. Challenges facing the Company during these efforts include:
Liquidity-Liquidity - The accompanying unaudited interim condensed consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company reported a net loss for the period ending August 31, 2019 but2020 and had an increasea decrease in working capital and liquid assets for the comparable six month fiscal 2020 period. Working capital decreased due toperiod primarily as a result of $1.0 million loss in the new accounting lease rules whereby leases are capitalized and liabilities are recognized for the lease obligations. The short term lease obligation created by this new rule was $0.6 million as of August 31, 2019.second quarter. The Company has sustained losses for the last threefour of fourfive fiscal years and has seen overall a decline in working capital and liquid assets during this fourfive year period. Annual losses over this time are due to a combination of decreasing revenues across certain divisions without a commensurate reduction of expenses. The Company has seen a rise in the backlog for customer orders and increased activity within the markets it serves. The Company’s working capital and liquid asset position are presented below (in thousands) as of August 31, 20192020 and February 28, 2019:29, 2020:
August 31, 2019 | February 28, 2019 | |||||||
Working capital | $ | 2,017 | $ | 3,354 | ||||
Liquid assets | $ | 577 | $ | 410 |
Video Display Corporation and Subsidiaries
August 31, 2019
August 31, 2020 | February 29, 2020 | |||||||
Working capital | $ | 860 | $ | 1,263 | ||||
Liquid assets | $ | 429 | $ | 844 |
Management has implemented a plan to improve the liquidity of the Company. The Company has been fulfillingimplementing a plan to increase revenues at all the divisions, each structured to the particular division which has resulted with an increasedivision. The fiscal year ended February 29, 2020 was a transition year for the Company. Many of the legacy programs the Company serviced were heading into new phases or the next generation of the product line. This caused delays in the current backlognormal flow of the orders for these programs. The Company is working with these customers and growth expects these programs to be placing orders to be fulfilled
Video Display Corporation and Subsidiaries
August 31, 2020
in revenues.this fiscal year. For example, the Company received a $2.8 million order for one of these legacy programs in fiscal 2021. The Company has reduced otherexpanded its cyber security business by adding a second testing chamber for testing tempest products in fiscal 2020 allowing it to increase the business in cyber testing services to supplement the product side of the business. The Company is also now involved in ruggedized displays, recently bringing on engineering familiar with these products and acquiring a small specialized display company in January 2020. The Company did $1.1 million in specialized displays in fiscal 2021 with an additional backlog of $0.9 million for these products. Also, the Company completed the transfer of its remaining CRT operations to its Lexel Imaging facility in Lexington, KY in fiscal 2021 which will reduce expenses atin the divisions, as well as atCRT operation by having that business all under one roof. The Company also moved the corporate accounting functions to the Cocoa, Florida location in fiscal 2020 which allows the Company to become more efficient and save money on reducing redundant operations. In addition, the Company sold its Pennsylvania owned building in September 2020 with net proceeds of $2.028 million after commissions and closing costs. These net proceeds were used to pay back the note payable with the expectation that further decreases can be achieved. The Company has completed the merger of the two Florida businesses into one facility and the relocation of Lexel Imaging into a new facility. These changes are projected to realize annual savings through reduced expenses. CEO with remaining funds allocated for working capital needs.
Management continues to explore options to monetize certain long-term assetsincrease the liquidity of the business.Company. If additional and more permanent capital is required to fund the operations of the Company, no assurance can be given that the Company will be able to obtain the capital on terms favorable to the Company, if at all.
The ability of the Company to continue as a going concern is dependent upon the success of management’s plans to improve revenues, the operational effectiveness of continuing operations, to liquidate the subsidiary noted above, the procurement of suitable financing, or a combination of these. The uncertainty regarding the potential success of management’s plan create substantial doubt about the ability of the Company to continue as a going concern.
Inventory management – The Company’s business units utilize different inventory components than the divisions had in the past. The Company has a monthly reserve at each of its divisions to offset any obsolescence although most purchases are for current orders, which should reduce the amount of obsolescence in the future. The Company still has CRT inventory in stock and component parts for legacy products, although it believes the inventory will be sold in the future, will continue to reserve for any additional obsolescence. Management believes its inventory reserves at August 31, 20192020 and February 28, 201929, 2020 are adequate.
Impact of COVID-19– The Company has been actively monitoring the novel coronavirus, or COVID-19, situation and its impact globally. Financial results for the three and six months ended August 31, 2020 have been impacted by COVID-19 due to delayed orders and/or the fulfillment of the related orders. However, the Company currently does not expect any material impact on our financial results for the remainder of fiscal 2021. Management continues to operate normally with the exception of enabling employees to work from home and abiding by travel restrictions issued by federal and local governments. If the COVID-19 pandemic continues, the Company may experience other disruptions that could severely impact the business, results of operations and prospects.
Results of Operations
The following table sets forth, for the three and six months ended August 31, 20192020 and 2018,2019, the percentages that selected items in the Interim Condensed Consolidated Statements of Operations bear to total sales:sales (amounts in thousands):
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Simulation and Training (VDC Display Systems) | 66.8 | % | 42.6 | % | 52.3 | % | 42.7 | % | ||||||||
Data Display CRT (Lexel and Data Display) | 17.1 | 12.9 | 20.1 | 12.7 | ||||||||||||
Broadcast and Control Centers (AYON Visual) | — | 1.6 | — | 2.4 | ||||||||||||
Cyber Secure Products (AYON Cyber Security) | 6.3 | 33.1 | 18.0 | 32.9 | ||||||||||||
Other Computer Products (Unicomp) | 9.8 | 9.8 | 9.6 | 9.3 | ||||||||||||
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Total Company | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
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Cost of goods sold | 84.6 | % | 73.5 | % | 84.5 | % | 74.5 | % | ||||||||
Selling and delivery | 4.5 | 5.7 | 5.2 | 6.0 | ||||||||||||
General and administrative | 27.7 | 25.6 | 29.7 | 23.0 | ||||||||||||
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116.8 | % | 104.8 | % | 119.4 | % | 103.5 | % | |||||||||
Operating loss | (16.8 | ) | (4.8 | ) | (19.4 | ) | (3.5 | ) | ||||||||
Interest expense, net | (0.0 | ) | (0.3 | ) | (0.0 | ) | (0.2 | ) | ||||||||
Other income, net | 3.3 | 4.9 | 6.6 | 4.3 | ||||||||||||
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Loss (income) before income taxes | (13.5 | )% | (0.2 | )% | (12.8 | )% | 0.7 | % | ||||||||
Income tax expense | — | — | — | — | ||||||||||||
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Net (loss) income | (13.5 | )% | (0.2 | )% | (12.8 | )% | 0.7 | % | ||||||||
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Simulation and Training (VDC Display Systems) | 49.8 | % | 66.8 | % | 49.1 | % | 52.3 | |||||||||
Data Display CRT (Lexel and Data Display) | 14.8 | 17.1 | 18.4 | 20.1 | ||||||||||||
Broadcast and Control Centers (AYON Visual) | — | — | — | — | ||||||||||||
Cyber Secure Products (AYON Cyber Security) | 22.0 | 6.3 | 22.8 | 18.0 |
Video Display Corporation and Subsidiaries
August 31, 20192020
Other Computer Products (Unicomp) | 13.4 | 9.8 | 9.7 | 9.6 | ||||||||||||
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Total Company | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | |||||||||
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Cost of goods sold | 91.9 | % | 84.6 | % | 80.6 | % | 84.5 | |||||||||
Selling and delivery | 12.7 | 4.5 | 8.3 | 5.2 | ||||||||||||
General and administrative | 42.6 | 27.7 | 32.9 | 29.7 | ||||||||||||
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147.2 | % | 116.8 | % | 121.8 | % | 119.4 | ||||||||||
Operating loss | (47.2 | )% | (16.8 | )% | (21.8 | )% | (19.4 | ) | ||||||||
Interest income (expense), net | (0.7 | )% | (0.0 | )% | (0.5 | )% | (0.0 | ) | ||||||||
Other income, net | 4.2 | 3.3 | 5.5 | 6.6 | ||||||||||||
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Loss before income taxes | (43.7 | )% | (13.5 | )% | (16.8 | )% | (12.8 | ) | ||||||||
Income tax expense | — | — | — | — | ||||||||||||
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Net loss | (43.7 | )% | (13.5 | )% | (16.8 | )% | (12.8 | ) | ||||||||
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Net sales
Consolidated net sales decreased 19.1%increased 1.0% for the six months ended August 31, 2019 and 2.8%2020, but decreased 29.0% for the three months ended August 31, 20192020 compared to the six months and three months ended August 31, 2018.2019. The Company’s AYON Cyber Security (ACS) division is down 55.7%up 27.9% for the six months ending August 31, 20192020 compared to the six months last year. Their business increased due to the completion of orders for the Department of the State. The activity in the cyber security market place has begun to pick up with the Department of State beginning to release bids for numerous large orders and the Company also has bids with Canada. The Company is developing new products for customers in this area and expects to have them be reviewed by customers by the end of this year. The Company has also ramped up the service side of the cyber business by testing other company’s products for compliance. To accommodate this additional business, the Company added a second testing chamber. For the three months ending August 31, 2019,2020, ACS was down 81.4% because of our customers waiting for funding to be approved before they could place orders with us.business increased 146.3%. The Display Systems division was down 1.1%5.1% for the six months ended August 31, 20192020 compared to the comparable periodsperiod last year. 36.2% of the division’s business has been in the new specialized displays segment of the division. The division completed the shipment of a large order of $1.2 million for aother approximate two thirds has been mixed between different programs including ruggedized displays, simulation and video wall for a large utility, which accounted for approximately 38% of their sales this year.walls. For the three months ended August 31, 2019,2020, the Display System division was up 52.6%down 47.0% compared to the same three months last year due to the sale for the video wall tofor $1.2 million in the utility.second quarter last year. The Company is focused on the video wall business with a recent order for a video wall for a major company’s executive conference room. The Company is also focused on the ruggedized displays (displays specifically designed to operate reliably in harsh usage environments and conditions) and the simulation sectors of the business, having recently received a good order for simulation and pursuing opportunities in both the ruggedized displays and simulation business. The Data Display division showed an increase of 27.8%decreased 7.8% and 28.2%38.6% for the six months and three months ended August 31, 20192020 due to increasesdecreases in the sales of a specialty product know as a DVST (Direct view storage tube), over 50% because of their sales are in this product year to date.delays caused by Covid-19. The Data Display division is also doing well with a long time customer, supplying them withseeing reduced sales for replacement CRTs (Cathode Ray Tubes) for their simulators.flight simulator customers due to the decrease in flights right now. The division expects to sell the DVST products for at least the next five to seven years. The Company’s keyboard division was down 16.2%up 2.3% for the six months ended August 31, 20192020 and 2.6%down 2.5% for three months ended August 31, 20192020 respectively compared to the same periods last year. The Company acquired this company in October of 2017. This division is expected to continue at this level of sales each quarter.
Gross margins
Consolidated gross margins decreasedincreased both as a percentage to sales (15.6% to 25.5%(19.4% from 15.6%) and actual dollars ($9231,163 thousand to $1,875from $923 thousand) for the six months ended August 31, 20192020 compared to the six months ended August 31, 2018.2019. Gross margins decreased for the three months ended August 31, 20192020 compared to the three months ended August 31, 2018,2019, both as a percentage to sales (15.5% to 26.5%(8.1% from 15.5%) and actual dollars, ($499185 thousand to $879from $498 thousand).
AYON Cyber Security gross margin percentage was 16.0% compared to 50.5% and the gross margin dollars were $171 thousand compared to $1,220 thousand for the six months ended August 31, 2019 and August 31, 2018 and 3.5% compared to 54.9% and $7 thousand compared to $604 thousand for the three months ended August 31, 2019 and August 31, 2018. The decrease in sales and the change in product mix (65% increase in material costs) contributed to the decrease in gross margins both for the six months and three months ended August 31, 2019. VDC Display Systems gross margin percentage was 19.4% compared 13.1% and the gross margin dollars were $601 thousand compared to $411 thousand for the six months ended August 31, 2019 and August 31, 2018 and 17.0% compared to 6.3% and $366 thousand compared to $90 thousand for the three months ended August 31, 2019 and August 31, 2018. VDC Display Systems gross margins improved due to lower labor costs as approximately 50% of the revenue was from two video wall installations. This was partially offset by higher material costs.
The keyboard division, Unicomp, had $187 thousand of gross margin dollars or 32.8% to sales for the six months ending August 31, 2019 compared to $312 thousand or 45.8% for the six months ending August 31, 2018. Their gross margin percentage improved to 40.2% for the three months ended August 31, 2019, but not up to last year’s three months ended August 31, 2018 at 47.9%. Actual gross margin dollars were $127 thousand compared to $155 thousand last year for the comparable quarter ended August 31, 2019. The Data Display division showed improvement in its margins of $94 thousand, but still had a negative gross margin of $36 thousand or a negative 3.3% for six months ending August 31, 2019.
Video Display Corporation and Subsidiaries
August 31, 20192020
Two of the four divisions (Display and Keyboard divisions) saw increases in gross margin percentages and gross margin dollars for the six months ended August 31, 2020 compared to the same period last year. The Cyber Security division saw an increase in gross margin dollars due to higher sales volume but had a lower gross margin percentage as much of their revenue was from a competitive bid contract. The only division with a lower gross margin percentage and dollars was the Data Displays CRT division.
For the three months ended August 31, 2020 compared to the same period last year, three of the four divisions made less gross margin dollars than last year. The cyber division did slightly better than last year. Overall gross margins for the quarter were down to the low sales volume as the display and cyber divisions had higher gross margin percentages than last year.
Operating expenses
Operating expenses decreased $56increased $394 thousand for the six months ended August 31, 20192020 compared to the six months ended August 31, 2018.2019. The decreaseincrease was due primarily to the reductionaddition of corporate salariescertain expenses associated with the acquisition of Jaco Displays in January, 2020 and benefits bycommission expense at the layoff of two accounting personnel. This was facilitated byLexel Imaging (CRT) operation on the movesales of the corporate accounting functions to the Company’s Cocoa, Florida location. specialty direct view storage tubes.
Operating expenses were unchangedincreased by 21.7% or $226 thousand for the three months ended August 31, 20192020 compared to the three months ended August 31, 2018.2019. The increase was due primarily to the increased costs of three employees that joined the Company resulting from the acquisition of the display company in January of this year, two in engineering, one in sales and the amortization costs of the intangibles ($30k) related to this acquisition. The Company expects to continue to control costs while increasing revenues with the completion of the new tempest testing chamber and new revenue streams of tempest services, specialized displays and ruggedized displays.
Interest expense,income (expense), net
Interest expense was $31 thousand for the six months ending August 31, 2020. The interest expense was $1 thousand for the six months ending August 31, 2019. The interest expenseThere was $16 thousand for the three months ending August 31, 2020 and was negligible for the three months ending August 31, 2019. There was $14 thousand for the six months ending August 31, 2018 and $8 for the three months ending August 31, 2018. The interest expense is relatedon the note payable to the line of credit at the Company’s bankCEO and the interest onPPP loan. These notes payable are discussed in Notes 6 and 8 of the margin balance in the Company’s investment account, which is a 3.75% rate.financial statements.
Other income (expense), net
For the six months ended August 31, 2020, the Company had $148 thousand in royalty income, $181 thousand in rental income, $6 thousand in discontinued scrap items, and $6 thousand in investment losses. For the six months ended August 31, 2019, the Company earned $191 thousand in royalty income, $180$183 in rental income, $15 thousand in scrap sales, and $1 thousand investment income.
For the three months ended August 31, 2020 the Company had $91 thousand in rental income, $1 thousand in scrap items, and $4 thousand in investment gains. For the three months ended August 31, 2019, the Company earned $93 thousand in rental income, $15 thousand in scrap income and a $1 thousand loss in investment income. For the six months ended August 31, 2018, the Company had $113 thousand in royalty income, $88 thousand in rental income, $33 thousand on the gain on the sale of equipment and $14 thousand in other, and $70 in investment gains including dividends. For the three months ended August 31, 2018 the Company had $53 thousand in rental income, $6 thousand in dividend income, $102 thousand in investment gains and $3 thousand in other.
Income taxes
Due to the Company’s overall and historical net loss position, no income tax expense was reported for the six month period ending August 31, 20192020 and August 31, 2018.2019. Due to continued losses reported by the Company, a full valuation allowance was allocated to the deferred tax asset created by these losses.
Video Display Corporation and Subsidiaries
August 31, 2020
Liquidity and Capital Resources
The accompanying unaudited interim condensed consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company reported a net loss for the period ending August 31, 2019 but2020 and had an increasea decrease in working capital and liquid assets for the six month period. Working capital decreased due toperiod primarily as a result of $1.0 million loss in the adoption of Topic 842 (see discussion in Note 4) whereby lease liabilities were recognized for lease obligations. While the liabilities are reflected in both current andnon-current liabilities, the corresponding leaseright-of-use assets are solely reflected innon-current assets. The current lease liability recognized as of August 31, 2019 was approximately $557 thousand.second quarter. The Company has sustained losses for the last threefour of fourfive fiscal years and has seen overall a decline in working capital and liquid assets during this fourfive year period. Annual losses over this time are due to a combination of decreasing revenues across certain divisions without a commensurate reduction of expenses. The Company has seen a rise in the backlog for customer orders and increased activity within the markets it serves. The Company’s working capital and liquid asset position are presented below (in thousands) as of August 31, 20192020 and February 28, 2019:
Video Display Corporation and Subsidiaries
August 31, 201929, 2020:
August 31, 2019 | February 28, 2019 | August 31, 2020 | February 29, 2020 | |||||||||||||
Working capital | $ | 2,017 | $ | 3,354 | $ | 860 | $ | 1,263 | ||||||||
Liquid assets | $ | 577 | $ | 410 | $ | 429 | $ | 844 |
Management has implemented a plan to improve the liquidity of the Company. The Company has been fulfilling a planand to increase revenues at all the divisions, each structured to the particular division which has resulted in the expectation of increased orders in. The Company has reduced other expenses at the divisions, as well as at the corporate location with the expectation that further decreases can be achieved. The Company has completed the merger of the two Florida businesses into one facility and the relocation of Lexel Imaging into a new facility. These changes are projected to realize annual savings through reduced expenses. Management continues to explore options to monetize certain long-term assets of the business. If additional and more permanent capital is required to fund the operations of the Company, no assurance can be given that the Company will be able to obtain the capital on terms favorable to the Company, if at all.
division. The ability of the Company to continue as a going concern is dependent upon the success of management’s plans to improve revenues, the operational effectiveness of continuing operations, to liquidate the subsidiary noted above, the procurement of suitable financing, or a combination of these. The uncertainty regarding the potential success of management’s plan create substantial doubt about the ability of the Company to continue as a going concern.
Cash used by operations for the six months ended August 31, 2020 was $1.5 million. Adjustments to net loss were $0.2 million for non-cash depreciation and amortization charges. Changes in working capital used $0.8 million, primarily due to a decrease in custom deposits of $1.0 million and an increase in contract assets by $0.2 million, offset by an increase in accounts payable and accrued liabilities of $0.3 million and a decrease in prepaid expenses and other assets of $0.2 million. Cash provided by operations for the six months ended August 31, 2019 was $0.4 million. The net loss from operations
There was $0.8 million. Changes in working capital provided $1.1 million, primarily due to an decrease in accounts receivable of $1.1 million, a decrease in prepaid expenses and other assets of $0.4 million, a decrease in inventory of $0.2 million, and an increase in accounts payable of $0.2 million, offset by a decrease in customer deposits of $0.7 million. Cash used by operationsminimal investing activities for the six months ended August 31, 2018 was $0.8 million.
2020. The Company used $31 thousand on capital assets expenditures and $47 thousand on trading security purchases offset with $24 thousand received from sale of investments. Investing activities used cash of $0.2 million during the six months ended August 31, 2019 resulting primarily from the purchase of capital assets.
Financing activities provided $1.1 million for the six months ended August 31, 2019 relating primarily to capital expenditures. Investing activities provided $0.3 million for the six months ended August 31, 2018 primarily2020 resulting from net cash$1.0 million proceeds received from the salePPP Loan discussed in Note 6 of investments along with cash proceeds receivedthe interim condensed consolidated financial statements, $0.2 million borrowed from the saleCEO marginally offset by repayment of the Company’s investment$35 thousand in a real estate partnership.
related party loans. Financing activities used $0.1 million for the six monthsquarter ended August 31, 2019. The Company paid $0.1 million2019 related to an officer for funds borrowed in the previous fiscal year. Financing activities provided $0.3 million forfinal debt payments made on the six months ended August 31, 2018 resulting from net proceeds from related-party loans and net proceeds from a line of credit.Teltron Building.
The Company has a stock repurchase program, pursuant to which it has been authorized to repurchase up to 2,632,500 shares of the Company’s common stock in the open market. On January 20, 2014, the Board of Directors of the Company approved aone-time continuation of the stock repurchase program, and authorized the Company to repurchase up to 1,500,000 additional shares of the Company’s common stock on the open market, depending on the market price of the shares. There is no minimum number of shares required to be repurchased under the program.
For the six monthsquarter ending August 31, 2020 and August 31, 2019, the Company did not purchase any shares of the Video Display Corporation stock. The Company repurchased 8,858 shares at an average cost of $1.12 per share for the six months ending August 31, 2018. Under the Company’s stock repurchase program, an additional 490,186 shares remain authorized to be repurchased by the Company at August 31, 2019.2020.
Video Display Corporation and Subsidiaries
August 31, 20192020
Critical Accounting Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon the Company’s interim condensed consolidated financial statements. These interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the interim condensed consolidated financial statements and related notes. The accounting policies that may involve a higher degree of judgments, estimates, and complexity include reserves on inventories, revenue recognition, and the sufficiency of the valuation reserve related to deferred tax assets. The Company uses the following methods and assumptions in determining its estimates:
Reserves on Inventories
Reserves on inventories result in a charge to operations when the estimated net realizable value declines below cost. Management regularly reviews the Company’s investment in inventories for declines in value and establishes reserves when it is apparent that the expected net realizable value of the inventory falls below its carrying amount. Management reviews inventory levels on a quarterly basis. Such reviews include observations of product development trends of the original equipment manufacturers, new products being marketed, and technological advances relative to the product capabilities of the Company’s existing inventories. Management believes its inventory reserves at August 31, 20192020 and February 28, 201929, 2020 are adequate.
Revenue Recognition
We recognize revenue when we transfer control of the promised products or services to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services. We derive our revenue primarily from sales of simulation and video wall systems, cyber secure products, data displays, and keyboards. We exclude sales and usage-based taxes from revenue.
Our simulation and video wall systems are custom-built (using commercialoff-the-shelf products) to customer specifications under fixed price contracts. Judgment is required to determine whether each product and service is considered to be a distinct performance obligation that should be accounted for separately under the contract. Generally, these contracts contain one performance obligation (the installation of a fully functional system). We recognize revenue for these systems over time as control is transferred based on labor hours incurred on each project.
We recognize revenue related to our cyber secure products, data displays, and keyboards at a point in time when control is transferred to the customer (generally upon shipment of the product to the customer).
Timing of invoicing to customers may differ from timing of revenue recognition; however, our contracts do not include a significant financing component as substantially all of our invoices have terms of 30 days or less. We are applying the practical expedient to exclude from consideration any contracts with payment terms of one year or less and we never offer terms extending beyond one year.
Other Loss Contingencies
Other loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. Disclosure is required when there is a reasonable possibility that the ultimate loss will exceed the recorded provision. Contingent liabilities are often resolved over long time periods. Estimating probable losses requires analysis of multiple factors that often depend on judgments about potential actions by third parties.
Video Display Corporation and Subsidiaries
August 31, 20192020
Income Taxes
Deferred income taxes are provided to reflect the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of August 31, 2019 and February 28, 2019,2020, the Company has established a valuation allowance of $5.9$6.3 million and $5.8 million, respectively, on the Company’s current andnon-current deferred tax assets.
The Company accounts for uncertain tax positions under the provisions of ASC 740, which contains atwo-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company’s tax positions and tax benefits, which may require periodic adjustments. At August 31, 2019,2020, the Company did not record any liabilities for uncertain tax positions.
Forward-Looking Information and Risk Factors
This report contains forward-looking statements and information that is based on management’s beliefs, as well as assumptions made by, and information currently available to management. When used in this document, the words “anticipate,” “believe,” “estimate,” “intends,” “will,” and “expect” and similar expressions are intended to identify forward-looking statements. Such statements involve a number of risks and uncertainties. These risks and uncertainties, which are included under Part I, Item 1A. Risk Factors in the Company’s Annual Report on Form10-K for the year ended February 28, 201929, 2020 could cause actual results to differ materially.
Video Display Corporation and Subsidiaries
August 31, 2019
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company’s primary market risks include changes in technology. The Company operates in an industry which is continuously changing. Failure to adapt to the changes could have a detrimental effect on the Company.
ITEM 4. CONTROLS AND PROCEDURES
Our disclosure controls and procedures (as defined in Exchange ActRule 13a-15(e)) are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, such as this quarterly report onForm 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.
Our chief executive officer and chief financial officer have conducted an evaluation of the effectiveness of our disclosure controls and procedures as of August 31, 2019.2020. We perform this evaluation on a quarterly basis so that the conclusions concerning the effectiveness of our disclosure controls and procedures can be reported in our annual report onForm 10-K and quarterly reports onForm 10-Q. Based on this evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of August 31, 2019.2020.
Changes in Internal Controls
There have not been any changes in our internal controls over financial reporting (as such term is defined inRules 13a-15(f) and15d-15(f)and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Video Display Corporation and Subsidiaries
August 31, 20192020
Item 1. | Legal Proceedings |
None.
Item 1A. | Risk Factors |
Information regarding risk factors appears under the caption Forward-Looking Statements and Risk Factors in Part I, Item 2 of thisForm 10-Q and in Part I, Item 1A of our Annual Report on Form10-K for the fiscal year ended February 28, 2019.29, 2020. There have been no material changes from the risk factors previously disclosed in our Annual Report onForm 10-K.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 3. | Defaults upon Senior Securities |
None.
Item 4. | Submission of Matters to a Vote of Security Holders |
None.
Item 5. | Other information |
None.
Item 6. | Exhibits |
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
VIDEO DISPLAY CORPORATION | ||||||||
October 15, | By: | /s/ Ronald D. Ordway | ||||||
Ronald D. Ordway | ||||||||
Chief Executive Officer | ||||||||
October 15, | By: | /s/ Gregory L. Osborn | ||||||
Gregory L. Osborn | ||||||||
Chief Financial Officer |
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