UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM10-Q

For the Quarterly Period Ended November 30, 2019.May 31, 2020.

or

For the Transition Period From                          to                        

Commission File Number0-13394

VIDEO DISPLAY CORPORATION

(Exact name of registrant as specified on its charter)

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:

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.

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 November 30, 2019,May 31, 2020, the registrant had 5,878,290 shares of Common Stock outstanding.

Video Display Corporation and Subsidiaries

Index

PART I. FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

Video Display Corporation and Subsidiaries

Interim Condensed Consolidated Balance Sheets (unaudited)

(in thousands)

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)

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)

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 Months Ended May 31, 2020 and 2019 (unaudited)

(in thousands)

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)

The accompanying notes are an integral part of these interim condensed consolidated statements.

Video Display Corporation and Subsidiaries

November 30, 2019May  31, 2020

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, and for the three and nine months ended, November 30,May 31, 2020 and 2019 and 2018 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 nine months ended November 30, 2019May 31, 2020 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 November 30, 2019May 31, 2020 but had an increase in working capital and a decrease in liquid assets for the comparable ninethree month fiscal 2020 period. Working capital decreased due to the adoptionperiod primarily as a result of Topic 842 (see discussion$988 thousand in Note 3) whereby lease liabilities were recognized for lease obligations. While the liabilities are reflectedPaycheck Protection Promissory related funds received 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 November 30, 2019 was approximately $557 thousand.April 2020. 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 November 30, 2019May 31, 2020 and February 28, 2019:29, 2020:

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 serviced were heading into new phases or the next generation of the product line. This caused delays in the normal flow of the orders for these programs. The Company is working with these customers and expects these programs to be placing orders to be fulfilled in this fiscal year. For example, the Company received a $2.8 million order for one of these legacy programs in the current quarter. The Company has expanded 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 received its first order for these services in its second quarter of fiscal 2020 and expects this business to grow as the year progresses. The Company is also now involved in ruggedized displays. Each division is exploring opportunities structured to their particular division which has resulteddisplays, recently bringing on engineering familiar with these products and acquiring a small specialized display company in an increaseJanuary 2020. The Company did $648 thousand in specialized displays in the growthquarter with an additional backlog of $1.2 million in revenuesthese products. With the acquisition of the display company, the Company completed the transfer of the remaining CRT operations to its Lexel Imaging facility in Lexington, KY in order to make room for the lastnew business in its Cocoa facility. This will also reduce expenses in the CRT 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. The plant move of its subsidiary in Lexington, Kentucky is completed and inventory from Tucker, Georgia and Cocoa, Florida have been moved to the Kentucky operation. This subsidiary saw a turn -around in the recently completed fiscal year, and is expectedbeing the only division to increase revenues thishave a profitable year. The Company has reduced other expensesplant move at the divisions,Florida operations was successful as well as at the corporate location with the expectation that further decreases can be achieved. The Company has completed the merger of theits two Florida businesses into one facility and absorbed the relocationacquisition of Lexel Imaging into a new facility. These changes are projected to realize annual savings through reduced expenses.the specialized display company. Management continues to explore options to monetize certain long-term assets of the business.business, including the possible sale of a building in Pennsylvania. 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

November 30, 2019May 31, 2020

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.

Note 3. – Recent Accounting PronouncementsFair Value Measurements and Financial Instruments

Effective March 1, 2019, we adoptedThe Financial Accounting Standards Update (“ASU”)No. 2016-02,Leases (Topic 842),as amendedBoard’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:

Assets measured at fair value on a recurring basis by ASU2018-01,Leases (Topic 842) – Land Easement Practical Expedientthe Company consist of investment securities held 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).trading using Level 1 inputs. The new standard established aright-of-use (“ROU”) model that required lessees to record ROUfollowing table sets forth financial assets and lease obligationsliabilities that were accounted for at fair value on a recurring basis as of May 31, 2020 (in thousands):

The Company had $2.9 thousand outstanding margin account borrowing as of May 31, 2020 and none as of February 29, 2020. The margin account borrowings are used to purchase marketable equity securities and are netted against the investments in the balance sheet for all leases with terms longer than 12 months.

We adopted Topic 842 in first quarter fiscal 2020 usingto show net trading investments. The gross investments were $14.6 thousand leaving net investments of $11.7 thousand after 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 sheet related to the adoptionmargin account borrowings of the new standard was recorded as of the adoption date and prior periods were not restated.

As part of the adoption of Topic 842, we elected to adopt certain of 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; 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 lease assets and operating lease liabilities of approximately $2.1 million as of March 1, 2019.$2.9 thousand at May 31, 2020. The adoption of this standard did not have an impact on retained earnings, the consolidated statements of operations or the consolidated statements of cash flows.margin interest rate is 4.25% at May 31, 2020.

Video Display Corporation and Subsidiaries

November 30, 2019May 31, 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.

Note 4. – Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

Effective March 1, 2020 we adopted Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820-10): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), 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 or 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 ASU 2018-13 did not have a material impact on the Company’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 Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by removing certain exceptions related to the approach 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 accounting 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 disclosures. The guidance is effective for the Company beginning on March 1, 2021 and prescribes different transition methods for the various provisions. The Company does not expect the adoption of ASU 2019-12 to have 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 measurement and recognition of expected credit losses for financial assets held 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 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 ASU 2016-13 to have a material impact on its financial statements 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):

Video Display Corporation and Subsidiaries

May 31, 2020

Note 5.6. – Line of Credit and Long-Term DebtPaycheck Protection Promissory (“PPP”) Related Loans

The Company hadOn April 13, 2020 our Lexel Imaging subsidiary entered into a $0.2 million line of credit$216,200 Paycheck Protection Promissory Note (the “PPP Loan”) with the Brand Banking CompanyCentral Bank and on April 23, 2020, Video Display Corporation entered into a $772,000 PPP Loan with $0.1 million balance outstanding on the line at November 30, 2019.Renasant Bank. The line matured on December 25, 2019,PPP Loans were made under, and are subject to the terms and conditions of, the PPP which was established under the CARES Act and is personally guaranteedadministered by the Chief Executive OfficerU.S. Small Business Administration. The current terms of the loans are two years with maturity dates of April 13, 2022 and has anApril 23, 2022 and they contain a favorable fixed annual interest rate of LIBOR plus 3.75%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 is in negotiations to havehas been using the line extended while more permanent financing is secured. The loan has no financial covenants.

Long-term debt consistedproceeds of the following (in thousands):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 May 31, 2020, $385 thousand of the total $988 thousand in PPP related loans is classified as a current liability on the condensed consolidated balances sheets.

Note 6.7. – 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.

Video Display Corporation and Subsidiaries

May 31, 2020

The following table summarizes the maturity of the Company’s operating lease liabilities as of November 30, 2019May 31, 2020 (in thousands):

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 November 30, 2019 and $292 thousand for the nine months ended November 30, 2019May 31, 2020 (which is included in the total lease costs of $157 thousand noted above). Lease costs were also $97 thousand for the three months ended May 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 lease expires in August 2023.

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 for the three months ended November 30, 2019May 31, 2020 and $270,000 for the nine months ended November 30, 2019. Future remaining lease payments expected to be received as of November 30, 2019May 31, 2020 are as follows (in thousands):

Video Display Corporation and Subsidiaries

November 30, 2019May 31, 2020

See Note 8.7 for a discussion of leases with related parties.

Note 9. – Supplemental Cash Flow Information

Supplemental cash flow information is as follows (in thousands):

Note 9.10. – 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.

The following table sets forth the computation of basic and diluted earnings (loss) per share for the three-month and nine month periods ended November 30,May 31, 2020 and 2019 and 2018 (in thousands, except per share data):

Video Display Corporation and Subsidiaries

November 30, 2019May 31, 2020

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 threeMay 31, 2020 and nine months ended November 30, 2019.2019 diluted earnings (loss) per share calculations.

Stock-Based Compensation Plans

For the nine-monththree-month period ended November 30,May 31, 2020, there was no expense related to share-based compensation as all options were fully vested. For the period ended May 31, 2019, and 2018, the Company recognized general and administrative expenses of $5$2 thousand and $13 thousand, respectively, related to share-based compensation. As of November 30, 2019, and November 30, 2018, total unrecognized compensation costs related to stock options granted was $2 thousand and $12 thousand, respectively. The unrecognized stock option compensation cost is expected to be recognized by February, 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.

No options were granted for the ninethree month period ending November 30, 2019May 31, 2020 or for the ninethree month period ended November 30, 2018.May 31, 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.

Video Display Corporation and Subsidiaries

November 30, 2019May 31, 2020

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—the manufacturing and distribution of displays and display components. The Company is organized into five interrelated operations aggregated into one reportable segment.

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 November 30, 2019May 31, 2020 but had an increase in working capital and a decrease in liquid assets for the comparable ninethree month fiscal 2020 period. Working capital decreased due to the adoptionperiod primarily as a result of Topic 842 (see discussion$988 thousand in Note 3) whereby lease liabilities were recognized for lease obligations. While the liabilities are reflectedPaycheck Protection Promissory related funds received 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 November 30, 2019 was approximately $557 thousand.April 2020. 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 four 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 November 30, 2019May 31, 2020 and February 28, 2019:29, 2020:

Video Display Corporation and Subsidiaries

May 31, 2020

of the display company, the Company completed the transfer of the remaining CRT operations to its Lexel Imaging facility in Lexington, KY in order to make room for the lastnew business in its Cocoa facility. This will also reduce expenses in the CRT 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. The plant move of its subsidiary in Lexington, Kentucky is completed and inventory from Tucker, Georgia and Cocoa, Florida have been moved to the Kentucky operation. This subsidiary saw a turn -around in the recently completed fiscal year, and is expectedbeing the only division to increase revenues thishave a profitable year. The Company has reduced other expensesplant move at the divisions,Florida operations was successful as well as at the corporate location with the expectation that further decreases can be achieved. The Company has completed the merger of theits two Florida businesses into one facility and absorbed the relocationacquisition of Lexel Imaging into a new facility. These changes are projected to realize annual savings through reduced expenses.the specialized display company. Management continues to explore options to monetize certain long-term assets of the business.business, including the possible sale of a building in Pennsylvania. 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, 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 November 30, 2019May 31, 2020 and February 28, 201929, 2020 are adequate.

Results of Operations

The following table sets forth, for the three and nine months ended November 30,May 31, 2019 and 2018, the percentages that selected items in the Interim Condensed Consolidated Statements of Operations bear to total sales:sales (amounts in thousands):