UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~July 31, 2021~~April 30, 2022


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File number 1-8777


VIRCO MFG. CORPORATION (Exact Name of Registrant as Specified in its Charter)


Delaware						95-1613718
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

2027 Harpers Way, Torrance, CA						90501
(Address of Principal Executive Offices)						(Zip Code)

Registrant’s Telephone Number, Including Area Code: (310) 533-0474

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.01 par value per share

VIRC

The Nasdaq Stock Market LLC

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 ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting 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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

The number of shares outstanding for each of the registrant’s classes of common stock, as of the latest practicable date:

Common Stock, $.01 par value — 16,102,023 shares as of ~~September 6, 2021.~~June 2, 2022.

TABLE OF CONTENTS


Part I. Financial Information		3
	Item 1. Financial Statements	3
	Unaudited condensed consolidated balance sheets -April ~~July~~3 10 , ~~2021,~~202 2 , January 31, ~~2021~~202 2 and ~~July~~April 3 10 , ~~2020~~202 1	3
	Unaudited condensed consolidated statements of ~~income~~operations - Three months ended ~~July 31, 2021~~April 30 , 202 2 and ~~2020~~202 1	5
	~~Unaudited condensed consolidated statements of operations -~~ ~~Six~~ ~~months ended July 31, 2021 and 2020~~	6
	Unaudited condensed consolidated statements of comprehensive ~~income~~ loss - Three months ended ~~July 31, 2021~~April 3 0 , 202 2 and ~~2020~~202 1	76
	~~Unaudited condensed consolidated statements of comprehensive income (loss) - Six months ended July 31, 2021 and 2020~~	8
	Unaudited condensed consolidated statements of cash flows - ~~Six~~ Three months ended ~~July~~April 3 10 , ~~2021~~202 2 and ~~2020~~202 1	97
	Unaudited condensed consolidated statements of changes in stockholders' equity - Three ~~and Six~~ months ended ~~July~~April 3 130 , ~~2021~~202 2 and ~~2020~~202 1	108
	Notes to unaudited condensed consolidated financial statements - ~~July~~ 3 1April 30 , 20212	129
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2117
	Item 3. Quantitative and Qualitative Disclosures about Market Risk	2319
	Item 4. Controls and Procedures	2419
Part II. Other Information		2521
	Item 1. Legal Proceedings	2521
	Item 1A. Risk Factors	2521
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ~~and Issuer Purchases of Equity Securities~~	2521
	Item 3. Defaults Upon Senior Securities	2521
	Item 4. Mine Safety Disclosures	2521
	Item 5. Other Information	2521
	Item 6. Exhibits	2521
	EX-31.1
	EX-31.2
	EX-32.1
	EX-101 INSTANCE DOCUMENT
	EX-101 SCHEMA DOCUMENT
	EX-101 CALCULATION LINKBASE DOCUMENT
	EX-101 LABELS LINKBASE DOCUMENT
	EX-101 PRESENTATION LINKBASE DOCUMENT

PART I. Financial Information

Item 1. Financial Statements

Virco Mfg. Corporation

Unaudited Condensed Consolidated Balance Sheets


		7/31/2021		1/31/2021		7/31/2020			4/30/2022		1/31/2022		4/30/2021
		(In thousands)							(In thousands)

Assets	Assets							Assets
Current assets	Current assets							Current assets
Cash	Cash	$	641	$	402	$	878	Cash	$	539	$	1,359	$	556
Trade accounts receivables, net	Trade accounts receivables, net	34,400		9,759		32,688		Trade accounts receivables, net	13,326		17,769		14,334
Other receivables	Other receivables	51		26		60		Other receivables	85		118		39
Income tax receivable	Income tax receivable	124		199		535		Income tax receivable	135		152		85
Inventories	Inventories	42,393		38,270		49,444		Inventories	66,297		47,373		42,875
Prepaid expenses and other current assets	Prepaid expenses and other current assets	2,151		2,311		2,174		Prepaid expenses and other current assets	2,156		2,076		2,099
Total current assets	Total current assets	79,760		50,967		85,779		Total current assets	82,538		68,847		59,988
Non-current assets	Non-current assets							Non-current assets
Property, plant and equipment	Property, plant and equipment							Property, plant and equipment
Land	Land	3,731		3,731		3,731		Land	3,731		3,731		3,731
Land improvements	Land improvements	734		734		734		Land improvements	653		653		734
Buildings and building improvements	Buildings and building improvements	51,263		51,262		51,182		Buildings and building improvements	51,375		51,334		51,262
Machinery and equipment	Machinery and equipment	112,544		112,098		111,710		Machinery and equipment	113,901		113,315		111,779
Leasehold improvements	Leasehold improvements	993		1,004		1,086		Leasehold improvements	1,009		1,009		989
Total property, plant and equipment	Total property, plant and equipment	169,265		168,829		168,443		Total property, plant and equipment	170,669		170,042		168,495
Less accumulated depreciation and amortization	Less accumulated depreciation and amortization	133,517		132,003		129,596		Less accumulated depreciation and amortization	135,844		134,715		132,392
Net property, plant and equipment	Net property, plant and equipment	35,748		36,826		38,847		Net property, plant and equipment	34,825		35,327		36,103
Operating lease right-of-use assets	Operating lease right-of-use assets	15,602		17,596		19,551		Operating lease right-of-use assets	12,892		13,870		16,682
Deferred tax assets, net	Deferred tax assets, net	10,840		11,716		11,222		Deferred tax assets, net	769		399		12,879
Other assets, net	Other assets, net	7,972		7,931		7,970		Other assets, net	8,383		8,002		8,020
Total assets	Total assets	$	149,922	$	125,036	$	163,369	Total assets	$	139,407	$	126,445	$	133,672

See accompanying notes to unaudited condensed consolidated financial statements.

Virco Mfg. Corporation

Unaudited Condensed Consolidated Balance Sheets


		7/31/2021		1/31/2021		7/31/2020			4/30/2022		1/31/2022		4/30/2021
		(In thousands, except share and par value data)							(In thousands, except share and par value data)

Liabilities	Liabilities							Liabilities
Current liabilities	Current liabilities							Current liabilities
Accounts payable	Accounts payable	$	18,821	$	8,421	$	16,764	Accounts payable	$	19,437	$	19,785	$	12,976
Accrued compensation and employee benefits	Accrued compensation and employee benefits	5,502		4,576		5,595		Accrued compensation and employee benefits	5,055		5,596		4,597
Current portion of long-term debt	Current portion of long-term debt	5,526		887		18,387		Current portion of long-term debt	18,905		340		2,990
Current portion operating lease liability	Current portion operating lease liability	4,678		4,672		4,581		Current portion operating lease liability	4,769		4,734		4,715
Other accrued liabilities	Other accrued liabilities	9,147		3,550		6,417		Other accrued liabilities	6,049		5,829		4,364
Total current liabilities	Total current liabilities	43,674		22,106		51,744		Total current liabilities	54,215		36,284		29,642
Non-current liabilities	Non-current liabilities							Non-current liabilities
Accrued self-insurance retention	Accrued self-insurance retention	1,374		935		1,494		Accrued self-insurance retention	1,533		965		1,530
Accrued pension expenses	Accrued pension expenses	19,000		21,889		21,419		Accrued pension expenses	15,332		15,430		21,520
Income tax payable	Income tax payable	65		65		71		Income tax payable	76		71		71
Long-term debt, less current portion	Long-term debt, less current portion	14,738		9,553		15,407		Long-term debt, less current portion	14,564		14,173		14,795
Operating lease liability, less current portion	Operating lease liability, less current portion	13,429		15,619		17,798		Operating lease liability, less current portion	10,297		11,437		14,573
Other long-term liabilities	Other long-term liabilities	685		682		704		Other long-term liabilities	640		639		683
Total non-current liabilities	Total non-current liabilities	49,291		48,743		56,893		Total non-current liabilities	42,442		42,715		53,172
Commitments and contingencies (Notes 6, 7 and 13)	Commitments and contingencies (Notes 6, 7 and 13)	0		0		0		Commitments and contingencies (Notes 6, 7 and 13)	0		0		0
Stockholders’ equity	Stockholders’ equity							Stockholders’ equity
Preferred stock:	Preferred stock:							Preferred stock:
Authorized 3,000,000 shares, $0.01 par value; none issued or outstanding	Authorized 3,000,000 shares, $0.01 par value; none issued or outstanding	—		—		—		Authorized 3,000,000 shares, $0.01 par value; none issued or outstanding	—		—		—
Common stock:	Common stock:							Common stock:
Authorized 25,000,000 shares, $0.01 par value; issued and outstanding 16,102,023 shares at 7/31/2021 and 15,918,642 at 1/31/2021 and 7/31/2020		161		159		159
Authorized 25,000,000 shares, $0.01 par value; issued and outstanding 16,102,023 shares at 4/30/2022 and 1/31/2022 and 15,918,642 at 4/30/2021								Authorized 25,000,000 shares, $0.01 par value; issued and outstanding 16,102,023 shares at 4/30/2022 and 1/31/2022 and 15,918,642 at 4/30/2021	161		161		159
Additional paid-in capital	Additional paid-in capital	119,985		119,655		119,149		Additional paid-in capital	120,745		120,492		119,908
Accumulated deficit	Accumulated deficit	(52,191)		(52,042)		(50,955)		Accumulated deficit	(72,262)		(67,178)		(55,951)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(10,998)		(13,585)		(13,621)		Accumulated other comprehensive loss	(5,894)		(6,029)		(13,258)
Total stockholders’ equity	Total stockholders’ equity	56,957		54,187		54,732		Total stockholders’ equity	42,750		47,446		50,858
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	149,922	$	125,036	$	163,369	Total liabilities and stockholders’ equity	$	139,407	$	126,445	$	133,672

See accompanying notes to unaudited condensed consolidated financial statements.

Virco Mfg. Corporation

Unaudited Condensed Consolidated Statements of ~~Income~~Operations


		Three months ended					Three months ended
		7/31/2021		7/31/2020			4/30/2022		4/30/2021
		(In thousands, except per share data)					(In thousands, except per share data)
Net sales	Net sales	$	59,022	$	59,456	Net sales	$	32,084	$	28,367
Costs of goods sold	Costs of goods sold	36,703		36,253		Costs of goods sold	22,377		20,679
Gross profit	Gross profit	22,319		23,203		Gross profit	9,707		7,688
Selling, general and administrative expenses	Selling, general and administrative expenses	16,251		15,488		Selling, general and administrative expenses	14,451		11,983

Operating income		6,068		7,715

Operating loss						Operating loss	(4,744)		(4,295)
Pension expense	Pension expense	724		542		Pension expense	195		506
Interest expense	Interest expense	359		494		Interest expense	427		293
Income before income taxes		4,985		6,679
Income tax expense		1,225		3,126
Net income		$	3,760	$	3,553
Loss before income taxes						Loss before income taxes	(5,366)		(5,094)
Income tax benefits						Income tax benefits	(282)		(1,185)
Net loss						Net loss	$	(5,084)	$	(3,909)

Net income per common share:
Net loss per common share:						Net loss per common share:
Basic	Basic	$	0.24	$	0.23	Basic	$	(0.32)	$	(0.25)
Diluted	Diluted	$	0.24	$	0.23	Diluted	$	(0.32)	$	(0.25)
Weighted average shares of common stock outstanding:	Weighted average shares of common stock outstanding:					Weighted average shares of common stock outstanding:
Basic	Basic	15,920		15,733		Basic	16,033		15,824
Diluted	Diluted	15,929		15,746		Diluted	16,033		15,824

See accompanying notes to unaudited condensed consolidated financial statements.

Virco Mfg. Corporation

Unaudited Condensed Consolidated Statements of ~~Operations~~Comprehensive Loss

Six months ended
7/31/2021 7/31/2020
(In thousands, except per share data)
Net sales $ 87,389 $ 77,273
Costs of goods sold 57,382 49,166
Gross profit 30,007 28,107
Selling, general and administrative expenses 28,234 27,419
Operating income 1,773 688
Pension expense 1,230 1,084
Interest expense 652 898
Loss before income taxes (109) (1,294)
Income tax expense (benefit) 40 (149)
Net loss $ (149) $ (1,145)
Net loss per common share:
Basic $ (0.01) $ (0.07)
Diluted (a) $ (0.01) $ (0.07)
Weighted average shares of common stock outstanding:
Basic 15,872 15,694
Diluted (a) 15,872 15,694

~~(a) Net loss per common share was calculated based on basic shares outstanding due to the anti-dilutive effect on the inclusion of common stock equivalent shares.~~

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

~~Virco Mfg. Corporation~~

~~Unaudited Condensed Consolidated Statements of Comprehensive Income~~

Three months ended
7/31//2021 7/31/2020
(In thousands)
Net income $ 3,760 $ 3,553
Other comprehensive income:
Pension adjustments (net of tax expense of $803 and $120 at July 31, 2021 and 2020, respectively) 2,260 345
Net comprehensive income $ 6,020 $ 3,898


	Three months ended
	4/30/2022		4/30/2021
	(In thousands)

Net loss	$	(5,084)	$	(3,909)
Other comprehensive income:
Pension adjustments (net of tax expense of $0 and $116 at April 30, 2022 and 2021, respectively)	135		327
Net comprehensive loss	$	(4,949)	$	(3,582)

See accompanying notes to unaudited condensed consolidated financial statements.

Virco Mfg. Corporation

Unaudited Condensed Consolidated Statements of ~~Comprehensive Income (Loss)~~Cash Flows

Six months ended
7/31//2021 7/31/2020
(In thousands)
Net loss $ (149) $ (1,145)
Other comprehensive income:
Pension adjustments (net of tax expense of $919 and $240 at July 31, 2021 and 2020, respectively) 2,587 690
Net comprehensive income (loss) $ 2,438 $ (455)


	Three months ended
	4/30/2022		4/30/2021
	(In thousands)
Operating activities
Net loss	$	(5,084)	$	(3,909)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,129		1,151
Non-cash lease expense	(126)		(90)
Provision for doubtful accounts	15		15
Amortization of debt issuance costs	43		—


Deferred income taxes	(370)		(1,279)
Stock-based compensation	253		253


Amortization of net actuarial loss for pension plans	135		443

Changes in operating assets and liabilities:
Trade accounts receivable	4,428		(4,590)
Other receivables	33		(13)
Inventories	(18,924)		(4,605)
Income taxes	22		120
Prepaid expenses and other current assets	(180)		124
Accounts payable and accrued liabilities	(340)		5,422
Net cash used in operating activities	(18,966)		(6,958)
Investing activities:
Capital expenditures	(609)		(233)




Net cash used in investing activities	(609)		(233)
Financing activities:
Borrowing from long-term debt	19,759		8,505
Repayment of long-term debt	(804)		(1,160)
Payment on deferred financing costs	(200)		—


Net cash provided by financing activities	18,755		7,345

Net (decrease) increase in cash	(820)		154
Cash at beginning of period	1,359		402
Cash at end of period	$	539	$	556

See accompanying notes to unaudited condensed consolidated financial statements.

Virco Mfg. Corporation

Unaudited Consolidated Statements of Changes in Stockholders' Equity


	Three-Month Period Ended April 30, 2022
	Common Stock
In thousands, except share data	Shares	Amount		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholder's Equity
Balance at February 1, 2022	16,102,023	$	161	$	120,492	$	(67,178)	$	(6,029)	$	47,446
Net loss	—	—		—		(5,084)		—		(5,084)
Cash dividends	—	—		—		—		—		—
Pension adjustments, net of tax effect of $0	—	—		—		—		135		135
Shares vested and others	—	—		—		—		—		—
Stock compensation expense	—	—		253		—		—		253
Balance at April 30, 2022	16,102,023	$	161	$	120,745	$	(72,262)	$	(5,894)	$	42,750



	Three-Month Period Ended April 30, 2021
	Common Stock
In thousands, except share data	Shares	Amount		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholder's Equity
Balance at February 1, 2021	15,918,642	$	159	$	119,655	$	(52,042)	$	(13,585)	$	54,187
Net loss	—	—		—		(3,909)		—		(3,909)
Cash dividends	—	—		—		—		—		—
Pension adjustments, net of tax effect of $116	—	—		—		—		327		327
Shares vested and others	—	—		—		—		—		—
Stock compensation expense	—	—		253		—		—		253
Balance at April 30, 2021	15,918,642	$	159	$	119,908	$	(55,951)	$	(13,258)	$	50,858

See accompanying notes to unaudited condensed consolidated financial statements.

~~Virco Mfg. Corporation~~

~~Unaudited Condensed Consolidated Statements of Cash Flows~~

Six months ended
7/31/2021 7/31/2020
(In thousands)
Operating activities
Net loss $ (149) $ (1,145)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 2,289 2,675
Non-cash lease expense (192) 712
Provision for doubtful accounts 46 35
Deferred income taxes (42) 8
Stock-based compensation 506 506
Defined pension plan settlement 220 —
Amortization of net actuarial loss for pension plans 885 690
Changes in operating assets and liabilities:
Trade accounts receivable (24,687) (20,964)
Other receivables (25) —
Inventories (4,124) (6,114)
Income taxes 75 (236)
Prepaid expenses and other current assets 9 (200)
Accounts payable and accrued liabilities 16,632 8,178
Net cash used in operating activities (8,557) (15,855)
Investing activities:
Capital expenditures (963) (1,359)
Proceeds from life insurance policy 110 —
Net cash used in investing activities (853) (1,359)
Financing activities:
Borrowing from long-term debt 14,865 23,884
Repayment of long-term debt (5,040) (6,787)
Tax withholding payments on share-based compensation (176) (155)
Net cash provided by financing activities 9,649 16,942
Net increase (decrease) in cash 239 (272)
Cash at beginning of period 402 1,150
Cash at end of period $ 641 $ 878

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

~~Virco Mfg. Corporation~~

~~Unaudited Consolidated Statements of Changes in Stockholders' Equity~~

Three-Month Period Ended July 31, 2021
Common Stock
In thousands, except share data Shares Amount Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholder's Equity
Balance at May 1, 2021 15,918,642 $ 159 $ 119,908 $ (55,951) $ (13,258) $ 50,858
Net income — — — 3,760 — 3,760
Cash dividends — — — — — —
Pension adjustments, net of tax effect of $803 — — — — 2,260 2,260
Shares vested and others 183,381 2 (176) — — (174)
Stock compensation expense — — 253 — — 253
Balance at July 31, 2021 16,102,023 $ 161 $ 119,985 $ (52,191) $ (10,998) $ 56,957

Three-Month Period Ended July 31, 2020
Common Stock
In thousands, except share data Shares Amount Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholder's Equity
Balance at May 1, 2020 15,713,549 $ 157 $ 119,036 $ (54,508) $ (13,966) $ 50,719
Net income — — — 3,553 — 3,553
Cash dividends — — — — — —
Pension adjustments, net of tax effect of $120 — — — — 345 345
Shares vested and others 205,093 2 (139) — — (137)
Stock compensation expense — — 252 — — 252
Balance at July 31, 2020 15,918,642 $ 159 $ 119,149 $ (50,955) $ (13,621) $ 54,732

Six-Month Period Ended July 31, 2021
Common Stock
In thousands, except share data Shares Amount Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive loss Total Stockholder's Equity
Balance at February 1, 2021 15,918,642 $ 159 $ 119,655 $ (52,042) $ (13,585) $ 54,187
Net loss — — — $ (149) — (149)
Cash dividends — — — — — —
Pension adjustments, net of tax effect of $919 — — — — 2,587 2,587
Shares vested and others 183,381 2 (176) — — (174)
Stock compensation expense — — 506 — — 506
Balance at July 31, 2021 16,102,023 $ 161 $ 119,985 $ (52,191) $ (10,998) $ 56,957

Six-Month Period Ended July 31, 2020
Common Stock
In thousands, except share data Shares Amount Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive loss Total Stockholder's Equity
Balance at February 1, 2020 15,713,549 $ 157 $ 118,782 $ (49,810) $ (14,311) $ 54,818
Net loss — — — $ (1,145) — (1,145)
Cash dividends — — — — — —
Pension adjustments, net of tax effect of $240 — — — — 690 690
Shares vested and others 205,093 2 (139) — — (137)
Stock compensation expense — — 506 — — 506
Balance at July 31, 2020 15,918,642 $ 159 $ 119,149 $ (50,955) $ (13,621) $ 54,732

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

VIRCO MFG. CORPORATION

Notes to unaudited Condensed Consolidated Financial Statements

~~July 31, 2021~~April 30, 2022

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements and are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, ~~2021~~2022 (“Form 10-K”). In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three ~~and six~~ months ended ~~July 31, 2021~~April 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, ~~2022.~~2023. The balance sheet at January 31, ~~2021~~2022 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. All references to the “Company” refer to Virco Mfg. Corporation and its subsidiaries.

~~Principles of Consolidation and Reclassification~~

The consolidated financial statements include the accounts of Virco Mfg. Corporation and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The classification of certain prior year sales allowances of approximately $171,000 and $389,000 was made for the three and six months ended July 31, 2020, respectively. The amounts of reclassification representing the replacement of damaged goods, previously presented in net sales, is presented in costs of goods sold in the accompanying prior period statements of income or operations, which conform to current period presentation.

Liquidity

Management evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern over the next 12 months through September 30, 2022. The Company has experienced an overall decline in net sales and net income for the fiscal year ended January 31, 2021. For the first six-months of fiscal 2022 the Company experienced a material increase in orders and shipments as schools received funding to support a return to classroom instruction.

As a result of the reduced revenue in the prior fiscal year, the Company was not in compliance with its fixed-charge coverage ratio under its revolving and secured credit agreement with PNC Bank, as of July 31, 2020, prior to an amendment and waiver negotiated to satisfy the event of default that also reduced the ratio required for the rolling four-quarter period ended October 31, 2020 from 1.10:1.00 to 1.00:1.00. However, the Company was not in compliance with this amended fixed-charge ratio of 1.00:1.00 as of October 31, 2020 due to the continuing decline in net sales and net income. The Company successfully negotiated a waiver and amendment on December 11, 2020 to the agreement to satisfy the event of default and amend the fixed-charge coverage ratio covenant. The amended covenant allows the Company to add back certain COVID-19 related costs incurred between May 1, 2020 through April 30, 2021, not to exceed $2 million, to adjusted EBITDA and retains a minimum fixed-charge coverage ratio of 1.10:1.00 beginning with the quarter ended January 31, 2021 (see ~~Note 7). The Company was in compliance with the covenants as of July 31, 2021.~~

The Company expects the impact of supply chain constraints and COVID-19 to continue to be a challenge for the foreseeable future and believes the economy will be adversely impacted for an indeterminate period, including the demand for its products and supply of materials and labor required to manufacture products. The extent of the impact will depend on numerous factors that are unknown, uncertain and cannot be reasonably predicted. Based on the Company’s current projections, including COVID-19 related costs, and its ability to manage certain controllable expenditures, management believes it will maintain compliance with the financial covenants for the next 12 months and that the Company’s existing cash, projected operating cash flows and available credit facilities, described in ~~Note 7, are adequate to meet its operating needs, liabilities and commitments over the next 12 months from the issuance of the interim financial statements.~~

Note 2. Seasonality and Management Use of Estimates

The market for educational furniture is marked by extreme seasonality, with approximately 50% of the Company’s total sales typically occurring from June to August each year, the Company’s peak season. Hence, the Company typically builds and carries significant amounts of inventory during and in anticipation of this peak summer season to facilitate the rapid delivery requirements of customers in the educational market. This requires a large up-front investment in inventory, labor, storage and related costs as inventory is built in anticipation of peak sales during the summer months. As the capital required for this build-up generally exceeds cash available from operations, the Company has generally relied on third-party bank financing to meet cash flow requirements during the build-up period immediately preceding the peak season. In addition, the Company typically is faced with a large balance of accounts receivable during the peak season. This occurs for two primary reasons. First, accounts receivable balances typically increase during the peak season as shipments of products increase. Second, many customers during this period are educational institutions and government entities, which tend to pay accounts receivable slower than commercial customers. For the three ~~and six~~ months ended ~~July 31, 2021,~~April 30, 2022, management believes that the traditional peak season has been and will continue to be impacted by economic conditions related to supply chain disruption and COVID 19. The ~~Company has experienced difficulty sourcing desired levels of temporary labor and permanent hires in the manufacturing and distribution facilities. In addition, the~~ Company is experiencing supply chain disruptions for raw materials. ~~These conditions have adversely impacted sales volume for~~In addition, the ~~months~~Company's customers are experiencing supply chain disruption impacting the completion of ~~June~~new school construction and ~~July. The Company anticipates that a larger portion of its annual sales will occur in September, October, and November of the current fiscal year compared to prior years.~~renovation.

The Company’s working capital requirements during and in anticipation of the peak summer season require management to make estimates and judgments that affect assets, liabilities, revenues and expenses, and related contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to market demand, labor costs and stocking inventory. Significant estimates made by management include, but are not limited to, valuation of inventory; deferred tax assets and liabilities; useful lives of property, plant and equipment; liabilities under pension, warranty, self-insurance and environmental claims; and the accounts receivable allowance for doubtful accounts. Due to the inherent uncertainty involved in making assumptions and estimates, events and changes in circumstances arising after ~~July 31, 2021,~~April 30, 2022, including those resulting from the continuing impacts of the COVID-19 pandemic and supply chain disruption, may result in actual outcomes that differ from those contemplated by our assumptions and estimates.

Note 3. New Accounting Pronouncements

Recently Issued Accounting Updates

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaces the incurred loss impairment methodology for measuring and recognizing credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The adoption date, as modified by the recently issued ASU 2019-10, will be for the fiscal year ~~ending~~beginning after December 15, 2022 and interim periods therein. The Company is currently evaluating the effect the standard will have on the consolidated financial statements and related disclosures.

Other recently issued accounting updates are not expected to have a material impact on the Company’s consolidated financial statements.

Note 4. Revenue Recognition

The Company manufactures, markets and distributes a wide variety of school and office furniture to wholesalers, distributors, educational institutions and governmental entities. Revenue is recorded for promised goods or services when control is transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.

The Company's sales generally involve a single performance obligation to deliver goods pursuant to customer purchase orders. Prices for our products are based on published price lists and customer agreements. The Company has determined that the performance obligations are satisfied at a point in time when the Company completes delivery per the customer contract. The majority of sales are free on board ("FOB") destination where the destination is specified per the customer contract and may include delivering the furniture into the classroom, school site or warehouse. Sales of furniture that are sold FOB factory are typically made to resellers of our product who in turn provide logistics to the ultimate customer. Once a product has been delivered per the shipping terms, the customer is able to direct the use of, and obtain substantially all of the remaining benefits from the asset. The Company considers control to have transferred upon shipment or delivery in accordance with shipping

terms because the Company has a present right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset, and the customer has significant risks and rewards of ownership of the asset.

Sales are recorded net of discounts, sales incentives and rebates, sales taxes and estimated returns and allowances. The Company offers sales incentives and discounts through various regional and national programs to our customers. These programs include product rebates, product returns allowances and trade promotions. Variable consideration for these programs is estimated in the transaction price at contract inception based on current sales levels and historical experience using the expected value method, subject to constraint.

WeThe Company generates revenue primarily by manufacturing and distributing products through resellers and direct-to-customers. Control transfers to both resellers and direct customers at a point in time when the delivery process is complete as determined by the corresponding shipping terms. Therefore, we do not consider ~~our revenue generated through direct-to-customers and resellers~~them to be meaningfully different revenue streams given similarities in the nature of the products, performance obligation and distribution processes. Sales are predominately in the United States and to a similar class of customer. We do not manage or evaluate the business based on product line or any other discernable category.

Note 5. Inventories

Inventories are valued at the lower of cost (determined on a first-in, first-out basis) or net realizable value and includes material, labor and factory overhead. The Company records valuation adjustments for the excess cost of the inventory over its estimated net realizable value. Valuation adjustments for slow-moving and obsolete inventory are calculated using an estimated percentage applied to inventories based on a physical inspection of the product in connection with a physical inventory, a review of slow-moving products and component stage, inventory category, historical and forecasted consumption of sales, and consideration of active marketing programs. The market for education furniture is traditionally driven by value, not style, and the Company has not typically incurred ~~significant~~material obsolescence expenses. If market conditions are less favorable than those anticipated by management, additional valuation adjustments may be required. Due to reductions in sales volume in the past years, the Company’s manufacturing facilities are operating at reduced levels of capacity. The Company records the cost of excess capacity as a period expense, not as a component of capitalized inventory valuation.

The following table presents a breakdown of the Company’s inventories as of ~~July 31, 2021,~~April 30, 2022, January 31, ~~2021~~2022 and ~~July 31, 2020:~~April 30, 2021:

7/31/2021 1/31/2021 7/31/2020
(in thousands)
Finished goods $ 14,163 $ 15,606 $ 23,065
Work in process 14,061 11,907 15,430
Raw materials 14,169 10,757 10,949
Total inventories $ 42,393 $ 38,270 $ 49,444


	4/30/2022		1/31/2022		4/30/2021
	(in thousands)

Finished goods	$	29,919	$	16,731	$	16,887
Work in process	21,719		14,732		14,630
Raw materials	14,659		15,910		11,358
Total inventories	$	66,297	$	47,373	$	42,875

Note 6. Leases

The Company has operating leases on real property, equipment, and automobiles that expire at various dates. The Company determines if an arrangement is a lease at inception and assesses classification of the lease at commencement. All of the Company’s leases are classified as operating leases, as a lessee. The Company uses the implicit rate when readily determinable, or the incremental borrowing rate. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments using company specific credit spreads. The Company’s lease terms include options to extend or terminate the lease only when it is reasonably certain that we will exercise that option. Lease expense for our operating leases is recognized on a straight-line basis over the lease term.

~~In accordance with ASC 842,~~The quantitative information regarding our leases is as follows:


		Three-Months Ended				Six-Months Ended							Three-Months Ended
		7/31/2021		7/31/2020		7/31/2021			7/31/2020						4/30/2022			4/30/2021
		(in thousands, except lease term and discount rate)												(in thousands, except lease term and discount rate)
Operating lease cost	Operating lease cost	$	1,283	$	1,472	$	2,520		$	2,912		Operating lease cost			$	1,327		$	1,238
Short-term lease cost	Short-term lease cost	68		124		165			160			Short-term lease cost			97			96
Short-term sublease income		(10)		(10)		(20)			(20)
Sublease income												Sublease income			(10)			(10)
Variable lease cost	Variable lease cost	77		(85)		607			370			Variable lease cost			253			530
Total lease cost	Total lease cost	$	1,418	$	1,501	$	3,272		$	3,422		Total lease cost			$	1,667		$	1,854

Other operating leases information:	Other operating leases information:											Other operating leases information:
Cash paid for amounts included in the measurement of lease liabilities	Cash paid for amounts included in the measurement of lease liabilities					2,712			2,201			Cash paid for amounts included in the measurement of lease liabilities			$	1,454		$	1,328
Right-of-use assets obtained in exchange for new lease liabilities	Right-of-use assets obtained in exchange for new lease liabilities					165			398			Right-of-use assets obtained in exchange for new lease liabilities			$	98		$	165
Weighted-average remaining lease term (years)	Weighted-average remaining lease term (years)					3.6			4.5			Weighted-average remaining lease term (years)			2.9			3.8
Weighted-average discount rate	Weighted-average discount rate					6.4		%	6.4		%	Weighted-average discount rate			6.38		%	6.40		%

Minimum future lease payments for operating leases in effect as of ~~July 31, 2021,~~April 30, 2022, are as follows:

Operating Lease
(in thousands)
Remaining of 2022 $ 2,903
2023 5,460
2024 5,319
2025 5,371
2026 1,350
Thereafter —
Remaining balance of lease payments $ 20,403
Short-term lease liabilities $ 4,678
Long-term lease liabilities 13,429
Total lease liabilities $ 18,107
Difference between undiscounted cash flows and discounted cash flows $ 2,296


	Operating Lease
For the year ending January 31,	(in thousands)
2023	$	4,194
2024	5,511
2025	5,508
2026	1,382
2027	—
Thereafter	—
Remaining balance of lease payments	$	16,595

Short-term lease liabilities	$	4,769
Long-term lease liabilities	10,297
Total lease liabilities	$	15,066

Difference between undiscounted cash flows and discounted cash flows	$	1,529

Note 7. Debt

Outstanding balances for the Company’s long-term debt were as follows:

7/31/2021 1/31/2021 7/31/2020
(in thousands)
Revolving credit line $ 14,857 $ 4,590 $ 27,505
Other 5,407 5,850 6,289
Total debt 20,264 10,440 33,794
Less current portion 5,526 887 18,387
Non-current portion $ 14,738 $ 9,553 $ 15,407


	4/30/2022		1/31/2022		4/30/2021
	(in thousands)
Revolving credit line	$	28,674	$	9,551	$	12,157
Other	4,795		4,962		5,628
Total debt	33,469		14,513		17,785
Less current portion	18,905		340		2,990
Non-current portion	$	14,564	$	14,173	$	14,795

The Company and Virco Inc., its wholly-owned subsidiary (the “Borrowers”) ~~has~~have a Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association, as administrative agent and lender (“PNC”).The Credit Agreement ~~has been~~was amended ~~twenty-two~~numerous times since ~~it’s~~its origination in ~~2011 through fiscal~~December 2011.On September 28, 2021, the Borrowers entered into an Amended and Restated Revolving Credit and Security Agreement (the “Restated Credit Agreement”) with PNC Bank, which ~~among other things, extended~~amended and restated the ~~maturity date~~prior Credit Agreement and effectively incorporated all of the ~~Credit Agreement for three years until March 19, 2023.~~prior amendments into an amended and restated form of agreement.

The Restated Credit Agreement permits the Company to issue dividends or make payments with respect to the Company’s capital stock in an aggregate amount up to $3,000,000 during any fiscal year, provided that no default shall have occurred or is ~~an asset-based loan~~continuing or would result from any such payment, and the Company must demonstrate pro forma compliance with a 12-month trailing fixed charge coverage ratio of not less than 1.20:1.00 as of the fiscal quarter immediately preceding the date of any such dividend or payment. The Restated Credit Agreement also requires the Company to maintain a minimum fixed charge coverage ratio, and contains numerous other covenants that limit under certain circumstances the ability of the Borrowers and their subsidiaries to, among other things, merge with or acquire other entities, incur new liens, incur additional indebtedness, sell assets outside of the ordinary course of business, enter into transactions with affiliates, or substantially change the general nature of the business of the Borrowers.

The other material terms of the Restated Credit Agreement are substantially the same as those of the original Credit Agreement, consisting of (i) a revolving line of credit with a Maximum Revolving Advance Amount of $65,000,000 that is subject to a borrowing base limitation and generally provides for advances of up to 85% of eligible accounts receivable, plus a percentage equal to the lesser of 60% of the value of eligible inventory or 85% of the liquidation value of eligible inventory, plus $15,000,000 from January through July of each year, minus undrawn amounts of letters of credit and ~~reserves and (ii) an equipment loan of $2,000,000.~~reserves. The Restated

Credit Agreement is secured by substantially all of the ~~Company's, as defined,~~Borrowers’ personal property and certain of the ~~Company's~~Borrowers’ real property. The ~~principal amount outstanding under the Credit Agreement and any accrued and unpaid interest is due no later than March 19, 2023, and the~~Restated Credit Agreement is subject to certain prepayment penalties upon ~~earlier~~early termination of the Restated Credit Agreement. Prior to the maturity date, principal amounts outstanding under the Restated Credit Agreement may be repaid and reborrowed at the option of the Borrowers without premium or penalty, subject to borrowing base limitations, seasonal adjustments and certain other conditions, including reduced borrowings under the revolving line to less than or equal $10,000,000 for a period of 30 consecutive days during the fourth quarter of each fiscal year. The Restated Credit Agreement also contains certain financial covenants, including a fixed charge coverage ratio ~~beginning~~and limits on ~~February 1~~st~~, 2020 of not less than 1.10 to 1.00, and~~ capital ~~expenditures not to exceed $8,000,000.~~ expenditures.

The Company was in violation ~~with~~of its financial covenants under the Restated Credit Agreement as of ~~July~~January 31, ~~2020.~~2022, due to an increase in the Company’s net loss primarily attributable to the effects of supply chain disruptions and labor shortages. On ~~September 8, 2020,~~April 15, 2022, the Company entered into Amendment No. 212 to the Credit Agreement (“Amendment No. ~~21”~~2”) ~~with its lender, PNC Bank. Amendment No. 21 provided a limited waiver~~, which implemented the following changes to the Credit Agreement and Revolving Credit Facility:

i.extended the final maturity date of the Revolving Credit Facility from March 19, 2023 to April 15, 2027;

ii.increased the borrowing limit from $65,000,000 to $70,000,000 in July 2022 and August 2022, and increased the borrowing limit from $40,000,000 to $45,000,000 in October 2022;

iii.waived the Company’s violation of the covenant to maintain a fixed charge coverage ratio of at least 1.00 ~~to 1.00~~ for the ~~four fiscal quarter~~ period ended ~~July~~January 31, ~~2020,~~2022;

iv.for the first and ~~amended~~second quarters of fiscal year ending January 31, 2023, implemented a temporary year-to-date adjusted EBITDA covenant in lieu of testing the fixed charge coverage ratio covenant as ~~follows: (i) 1.00~~of such quarters, with quarterly testing of the fixed charge coverage ratio to ~~1.00~~resume for the ~~consecutive four~~third fiscal quarter ~~period ended October 31, 2020,~~ and ~~(ii) 1.10~~thereafter;

v.permits a sale and leaseback transaction of the Company’s property at 1655 Amity Road and release of the lender’s pledge on the property, with the net proceeds to ~~1.00~~be used for ~~each consecutive four fiscal quarter period ending thereafter. In connection with Amendment No. 21, the Company also agreed to pay to PNC Bank~~ a non-refundable fee of $75,000. However, the Company was not in compliance with this amended fixed-charge ratio of 1.00:1.00 as of October 31, 2020 due to the continuing decline in net sales and net income. The Company successfully negotiated and entered into Amendment No. 22proposed share repurchase;

vi.retired LIBOR pricing on ~~December 11, 2020 to~~ the Revolving Credit Facility and ~~Security Agreement (“Amendment No. 22”)~~replaced with ~~its lender, PNC Bank. Amendment No. 22 provided~~BSBY index, with pricing tiers and spreads to remain the same;

vii.extended the P-card, ACH Credit, and ACH debit facilities for an additional year beyond their current maturities; and

viii.Borrowers to pay a ~~limited~~$250,000 extension fee and $75,000 waiver and amendment fee, with $200,000 due at closing and $125,000 due on the first anniversary of closing.

Based on the ~~fixed-charge coverage Ratio for the four fiscal quarter period ended October 31, 2020 and amended the fixed-charge coverage calculation to allow for the add back of certain~~Company’s current projections, including COVID-19 related costs, ~~incurred from May 1, 2020 through April 30, 2021 not~~raw material costs and its ability to ~~exceed $2 million to adjusted EBITDA beginning~~introduce price increases, management believes it will maintain compliance with the ~~four fiscal quarter period ended January 31, 2021, and retains the required minimum coverage ratio of 1.10:1.00. In connection with~~financial covenants within Amendment No. ~~22, the Company also agreed to pay PNC Bank a non-refundable fee of $40,000.~~2, although there are uncertainties there within, such as raw material costs and supply chain challenges. The Company was in compliance with ~~the~~its debt covenants as of ~~July 31, 2021.~~April 30, 2022.

The Credit Agreement bears interest, at the Borrowers’ option, at either the Alternate Base Rate (as defined in the Credit Agreement) or the Eurodollar Currency Rate (as defined in the Credit Agreement), in each case plus an applicable margin. The applicable margin for Alternate Base Rate loans is a percentage within a range of 1.25% to 1.75%, and the applicable margin for Eurodollar Currency Rate loans is a percentage within a range of 2.25% to 2.75%, in each case based on the EBITDA of the Borrower's at the end of each fiscal quarter and may be increased at PNC's option by 2.0% during the continuance of an event of default. The interest rate as of July 31, 2021 was 4.5%. The Company also incurs a fee on the unused portion of the revolving line of credit at a rate of 0.375%.

~~Last year the impact of COVID-19 on liquidity was to moderate the seasonal increase in accounts receivable and production of inventory for summer delivery.~~ ~~Seasonal increases in accounts receivable and inventory are traditionally financed through the Company’s line of credit with PNC Bank.~~ ~~Reductions in inventory were substantially offset by a reduction in borrowing under the revolving line with PNC Bank.~~

In addition to the financial covenants, the Restated Credit Agreement ~~contains~~provides for customary events of default, ~~as disclosed in~~ ~~Note 3~~subject to ~~our Annual Report on Form 10-K for the year-ended January 31, 2021.~~certain cure periods and other limitations. Substantially all of the Borrowers' accounts receivable are automatically and promptly swept to repay amounts outstanding under the Restated Credit Agreement upon receipt by the Borrowers. Due to this automatic liquidating nature of the Restated Credit Agreement, if the Borrowers breach any covenant, violate any representation or warranty or suffer a deterioration in their ability to borrow pursuant to the borrowing base calculation, the Borrowers may not have access to cash liquidity unless provided by PNC at its discretion.

The Company's revolving line of credit with PNC is structured to provide seasonal credit availability during the Company's peak summer season. Approximately ~~$41,182,000~~$11,699,000 was available for borrowing as of ~~July 31, 2021.~~April 30, 2022. The interest rate as of April 30, 2022 was 5.25%. The Company also incurs a fee on the unused portion of the revolving line of credit at a rate of 0.375%.

Management believes that the carrying value of debt approximated fair value at ~~July 31, 2021 and 2020,~~April 30, 2022, as all of the long-term debt bears interest at variable rates based on prevailing market conditions.

Note 8. Income Taxes

In assessing the realizability of deferred tax assets, the Company considers whether it is more-likely-than-not that some portion or all of its deferred tax assets will not be realized.The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income or reversal of deferred tax liabilities during the periods in which those temporary

differences become deductible. As a part of this evaluation, the Company assesses all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, the availability of tax ~~carrybacks,~~carry backs, tax-planning strategies, and results of recent operations (including cumulative losses in recent years), to determine whether sufficient future taxable income will be generated to realize existing deferred tax assets. OnThe Company incurredoperating losses for fiscal years ended January 31, 2022 and 2021 and when combined with operating results from fiscal year ended January 31, 2020, the ~~basis~~Company had incurred a cumulative operating loss for the last three fiscal years. As a result, the Company identified objective and verifiable negative evidence in the form of cumulative losses in the U.S. and in certain state jurisdictions over the preceding twelve quarters ended January 31, 2022. While the Company has taken significant measures to return to profitability, and order rates at the beginning of the year are favorable, the short-term outlook for the school furniture market is challenging, particularly relating to ongoing supply chain difficulties. During the fourth quarter of the year ended January 31, 2022, based on this evaluation, and after considering future reversals of existing taxable temporary differences and the effects of seasonality on the Company’s business, the Company determined ~~that its U.S.~~the realization of a majority of the net deferred tax assets no longer met the more likely than not criteria and a valuation allowance was recorded against the majority of the net deferred tax assets. Valuation allowances of $10,099,000, $11,412,000 and $996,000 as of April 30, 2022, January 31, 2022 and April 30, 2021, respectively, are needed for federal deferred tax assets ~~are more-likely-than-not to be realizable, but that valuation allowances of $1,144,000, $1,064,000~~ and ~~$1,186,000 as of July 31, 2021, January 31, 2021 and July 31, 2020, respectively, are needed for~~ certain state ~~NOL’s~~net operating loss carryforwards to reduce the carrying amount of deferred tax assets to an amount that is more-likely-than-not to be realized.

For the ~~three months~~first quarter ended ~~July 31,~~April 30, 2022 and 2021, ~~and 2020,~~ the effective tax rates were ~~24.6%~~5.3% and ~~46.8%~~23.3%, respectively. ~~For the six months ended July 31, 2021 and 2020, the~~The change in effective ~~tax rates were (36.7)% and 11.5%, respectively. Effective~~ tax rates for the three months ended April 30, 2022 was primarily due to the recording of a valuation allowance needed for federal deferred tax assets and ~~six months~~certain state net operating loss carryforwards which commenced in the fourth quarter of fiscal year ended ~~July~~January 31, 2022 and continued through the period ended April 30, 2022. Effective tax rate for the first quarter ended April 30, 2021 ~~and 2020 were~~was primarily due to the change in forecasted mix of income before taxes in various jurisdictions, estimated permanent differences and the recording of a partial valuation allowance on net deferred tax assets.

On March 27, 2020, the then President signed the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). The Company has performed an analysis of the impact of the CARES Act and have determined that the impact would not be significant. The CARES Act provides single-employer pension companies additional time to meet the funding obligations. Consequently, the tax deduction related to such contributions will be deferred until the funding payment is made. The CARES Act also modifies the limitation for business interest expense deduction.~~The new limitation has increased from 30 to 50 percent of adjusted taxable income.~~

The January 31, ~~2016~~2017 and subsequent years remain open for examination by the IRS and state tax authorities. The Company is not currently under any state examination. The Company is currently under IRS examination for its fiscal year ended January 31, 2016 Federal tax return.

Note 9. Net ~~income (loss)~~loss per Share

Three Months Ended Six Months Ended
7/31/2021 7/31/2020 7/31/2021 7/31/2020
(In thousands, except per share data)
Net income (loss) $ 3,760 $ 3,553 $ (149) $ (1,145)
Weighted average shares of common stock outstanding 15,920 15,733 15,872 15,694
Net effect of dilutive shares - based on the treasury stock method using average market price 9 13 — —
Totals 15,929 15,746 15,872 15,694
Net income (loss) per share - basic $ 0.24 $ 0.23 $ (0.01) $ (0.07)
Net income (loss) per share - diluted (a) $ 0.24 $ 0.23 $ (0.01) $ (0.07)


	Three Months Ended
	4/30/2022		4/30/2021
	(In thousands, except per share data)

Net loss	$	(5,084)	$	(3,909)

Weighted average shares of common stock outstanding	16,033		15,824
Dilutive effect of common stock equivalents from equity incentive plans	—		—
Totals	16,033		15,824

Net loss per share - basic	$	(0.32)	$	(0.25)
Net loss per share - diluted (a)	$	(0.32)	$	(0.25)

(a) At ~~July 31,~~April 30, 2022 and 2021, approximately 169,000 and ~~2020, approximately 1,500 and 5,000~~155,000 shares of common stock equivalents were excluded infrom the computation of diluted net loss per share, as the effect would be anti-dilutive since the Company reported a net loss.

Note 10. Stock-Based Compensation

Stock Incentive Plan

The Company's two stock incentive plans are the 2019 ~~Employee Stock~~Omnibus Equity Incentive Plan (the “2019 Plan”) and the 2011 ~~Employee~~Stock Incentive ~~Stock~~ Plan (the “2011 Plan”).

Under the ~~Company's~~ 2019 Plan, the Company may grant an aggregate of 1,000,000 shares to its employees in the form of restricted stock units and non-employee directors in the form of restricted stock awards. Restricted stock units and awards granted under the

2019 Plan are expensed ratably over the vesting period of the awards. The Company determines the fair value of its restricted stock units or awards and related compensation expense as the difference between the market value of the units or awards on the date of grant less the exercise price of the units or awards granted. During the ~~six-month~~three-month period ended ~~July 31, 2021,~~April 30, 2022, the Company granted ~~68,870~~0 awards, ~~to non-employee directors,~~ vested ~~140,295~~0 shares according to their terms and forfeited 0 shares under the 2019 Plan. As of ~~July 31, 2021,~~April 30, 2022, there were approximately ~~628,435~~608,435 shares available for future issuance under the 2019 Plan. The Board of Directors has approved an increase in the number of shares available for grant under the 2019 Plan from 1,000,000 to 2,000,000 shares, which increase is subject to approval of the Company’s stockholders at the upcoming 2022 Annual Meeting of Stockholders.

Under the 2011 Plan, the Company may grant an aggregate of 2,000,000 shares to its employees in the form of restricted stock units and non-employee directors in the form of restricted stock awards. Restricted stock units and awards granted under the 2011 Plan are expensed ratably over the vesting period of the awards. The Company determines the fair value of its restricted stock units or awards and related compensation expense as the difference between the market value of the units or awards on the date of grant less the exercise price of the units or awards granted. ~~During the six-month period ended July 31,~~The 2011 Plan expired in 2021 ~~the Company granted 0 restricted~~and no new awards ~~to non-employee directors and 0 units to its employees; vested 0 stock awards and 119,200 units according to their terms and forfeited 0 stock units~~may be made under the 2011 ~~Plan. As of July 31, 2021, there~~Plan, although existing awards will remain outstanding in accordance with their terms. There were ~~approximately 12,892 shares available for future issuance~~no restricted stock awards granted or vested under the 2011 ~~Plan.~~Plan during the three-month period ended April 30, 2022.

During the three months ended ~~July 31,~~April 30, 2022 and 2021, stock-based compensation expense related to restricted stock units and awards recognized in cost of goods sold and selling, general and administrative expenses was $55,000 and $198,000, respectively. During the three months ended July 31, 2020, stock-based compensation expense related to restricted stock units and/or awards recognized in cost of goods sold and selling, general and administrative expenses was ~~$65,000~~$55,000 and ~~$187,000, respectively.~~

During the six months ended July 31, 2021, stock-based compensation expense related to restricted stock units and awards recognized in cost of goods sold and selling, general and administrative expenses was $110,000 and $396,000, respectively. During the six months ended July 31, 2020, stock-based compensation expense related to restricted stock units and/or awards recognized in cost of goods sold and selling, general and administrative expenses was $128,000 and $378,000,$198,000, respectively.

As of ~~July 31, 2021,~~April 30, 2022, there was ~~$1,668,000~~$908,000 of unrecognized compensation expense related to unvested restricted stock units and/or awards, which is expected to be recognized over a weighted average period of approximately 3 years.

Note 11. Retirement Plans

The Company and its subsidiaries cover certain employees under a noncontributory defined benefit retirement plan, entitled the Virco Employees’ Retirement Plan (the “Pension Plan”). As more fully described in the Annual Report on Form 10-K, benefit accruals under the Employees Retirement Plan were frozen effective December 31, 2003. There is no service cost incurred under this plan.

The Company also provides a supplementary retirement plan for certain key employees, the VIP Retirement Plan (the “VIP Plan”). As more fully described in the Annual Report on Form 10-K for the year ended January 31, ~~2021,~~2022, benefit accruals under this plan were frozen since December 31, 2003. During the second quarter ended July 31, 2021, the Company, at the retirees request, paid lump-sum distributions for the related benefit obligations. As the amount of the lump-sum settlement exceeded the sum of the service and interest cost for the year, the distribution was treated as a settlement in accordance with U.S. GAAP, resulting in plan settlement loss of $220,000 recorded in pension expense in the accompanying condensed consolidated statements of operations and an actuarial gain on the plan re-measurement of $1,770,000, net of tax, recorded to accumulated other comprehensive income for the three and six-months ended July 31, 2021.

The net periodic pension cost for the Pension Plan and the VIP Plan for the three ~~and six~~ months ended ~~July 31,~~April 30, 2022 and 2021 ~~and 2020~~ were as follows:


		Combined Employee Retirement Plans									Combined Employee Retirement Plans
		Three Months Ended				Six Months Ended					Three Months Ended
		7/31/2021		7/31/2020		7/31/2021		7/31/2020			4/30/2022		4/30/2021
		(in thousands)									(in thousands)
Service cost	Service cost	$	—	$	—	$	—	$	—	Service cost	$	—	$	—
Interest cost	Interest cost	280		301		561		602		Interest cost	298		281
Expected return on plan assets	Expected return on plan assets	(218)		(224)		(436)		(448)		Expected return on plan assets	(237)		(218)
Plan settlement	Plan settlement	220		—		220		—		Plan settlement	—		—
Amortization of prior service cost	Amortization of prior service cost	—		—		—		—		Amortization of prior service cost	—		—
Recognized net actuarial loss	Recognized net actuarial loss	442		465		885		930		Recognized net actuarial loss	134		443
Benefit cost	Benefit cost	$	724	$	542	$	1,230	$	1,084	Benefit cost	$	195	$	506

401(k) Retirement Plan

The Company’s retirement plan, which covers all U.S. employees, allows participants to defer from 1% to 75% of their eligible compensation through a 401(k)-retirement program. The plan includes Virco stock as one of the investment options. At ~~July 31,~~April 30, 2022 and 2021, ~~and 2020,~~ the plan held ~~991,899~~1,165,985 shares and ~~850,789~~970,632 shares of Virco stock, respectively. For the three months ended ~~July 31,~~April 30, 2022 and 2021, ~~and 2020,~~ the compensation costs incurred for employer match, which is paid in the form of Company stock, was ~~$207,000~~$330,000 and ~~$195,000, respectively. For the six months ended July 31, 2021 and 2020, the compensation costs incurred for employer match, which is paid in the form of Company stock, was $391,000 and $405,000,~~$184,000, respectively.

Note 12. Warranty Accrual

The Company provides a warranty against all substantial defects in material and workmanship. The standard warranty offered on products sold through January 31, 2013 is ten years. Effective February 1, 2014 the Company modified its warranty to a limited lifetime warranty. The warranty effective February 1, 2014 is not anticipated to have a significant effect on warranty expense. Effective January 1, 2017, the Company modified the standard warranty offered on products sold after January 1, 2017 to provide specific warranty periods by product component, with no warranty period longer than ten years. The Company’s warranty is not a guarantee of service life, which depends upon events outside the Company’s control and may be different from the warranty period. The Company accrues an estimate of its exposure to warranty claims based upon both product sales data and an analysis of actual warranty claims incurred.

The following is a summary of the Company’s warranty-claim activity for the three ~~and six~~ months ended ~~July 31, 2021~~April 30, 2022 and ~~2020:~~2021:


	Three Months Ended
	4/30/2022		4/30/2021
	(in thousands)
Beginning balance	$	600	$	700
Provision	34		43
Costs incurred	(34)		(43)
Ending balance	$	600	$	700

Three Months Ended Six Months Ended
7/31/2021 7/31/2020 7/31/2021 7/31/2020
(in thousands)
Beginning balance $ 700 $ 800 $ 700 $ 800
Provision 13 (17) 56 43
Costs incurred (13) (33) (56) (93)
Ending balance $ 700 $ 750 $ 700 $ 750

Note 13. Contingencies

The Company has a self-insured retention for product losses up to $250,000 per occurrence, workers’ compensation liability losses up to $250,000 per occurrence, general liability losses up to $50,000 per occurrence and automobile liability losses up to $50,000 per occurrence. The Company has purchased insurance to cover losses in excess of the self-insurance retention or deductible up to a limit of $30,000,000. The Company has obtained an actuarial estimate of its total expected future losses for liability claims and recorded a liability equal to the net present value.

The Company and its subsidiaries are defendants in various legal proceedings resulting from operations in the normal course of business. It is the opinion of management, in consultation with legal counsel, that the ultimate outcome of all such matters will not materially affect the Company’s financial position, results of operations or cash flows.

Note 14. Delivery Costs

For the three months ended ~~July 31,~~April 30, 2022 and 2021, ~~and 2020,~~ shipping and classroom delivery costs of approximately ~~$5,112,000~~$3,254,000 and ~~$4,907,000, respectively, were included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income.~~

~~For the six months ended July 31, 2021 and 2020, shipping and classroom delivery costs of approximately $8,033,000 and $6,985,000,~~$2,921,000, respectively, were included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

~~Note 15. COVID-19~~

On March 11, 2020, the World Health Organization declared the current coronavirus (COVID-19) outbreak to be a global pandemic. In response to this declaration and the rapid spread of COVID-19 within the United States, federal, state and local governments throughout the country have imposed varying degrees of restriction on social and commercial activity to promote social distancing in an effort to slow the spread of the illness. During first quarter ended April 30, 2021, the Company operated its manufacturing and distribution facilities on a voluntary basis to give employees the flexibility to remain at home with children who are out of school or for other personal reasons as they deem necessary. Subsequent to April 30, 2021 and after vaccinations were available, the Company required all manufacturing and distribution employees to return to work. Appropriate measures are being taken to protect the health of employees performing essential on-site operations. Office employees and others who can work from home continued to work from home.

The Company’s Conway, Arkansas facilities, which represent approximately two thirds of the Company’s production and distribution capacity, has been fully operational during the pandemic. In accordance with State of California and local orders that include guidance on the definition and responsibilities of “essential businesses,” the Company has been operating its Torrance facility.

Note ~~16.~~15. Subsequent Events

None.

2016

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

~~The effects of COVID~~-19Overview

The results of operations for the ~~three-month and six-month periods~~three-months ended ~~July 31, 2021~~April 30, 2022 and the comparable ~~periods~~period ended ~~July 31, 2020~~April 30, 2021 have been significantly impacted by economic conditions driven by the COVID-19 ~~pandemic.~~pandemic, global supply chain disruptions and global conflict. The impact of COVID-19 has been quite different during the current year compared to the prior year. Typically, the Company has an exceptionally seasonal annual cycle where approximately 50% of sales occur in the months of June, July and August. Orders received from customers follow a similar cycle, approximately 4-6 weeks preceding the selling season.

During the ~~three and six-month periods~~three-month period ended ~~July 31, 2020,~~April 30, 2021, the majority of our primary customers ~~the K-12 public school systems, closed school campuses and initiated remote learning on~~had either returned to full time classroom instruction or ~~about March 15, 2020. Most school districts continued with remote learning~~were planning for the academic year ended June 2020 and into the year beginning August 2020, with a minority of districts attempting hybrid or on-site learning. During this period our direct sales force, one of the Company’s distinct competitive advantages, was unable to make in-person calls. Our primary customers, educators and district business officials, were typically working remotely which complicated selling activities. As a result, order rates during our traditionally busy summer season of June 2020 through August 2020 declined, causing a reduction in sales.

~~During the six months ended July 31, 2021, many school districts announced hybrid or on-site learning beginning in approximately April 2021.~~an imminent return. The Company received a large ~~volume~~number of orders for immediate delivery ~~during this period. Orders received for~~in anticipation of the ~~first~~return to classroom instruction. For the three-month period ended April 30, 2022, management believes that the traditional seasonal cycle has returned. During the quarter ended April 30, 2021 increased by 26.7% compared to the same period of the prior year. The majority of school districts have planned for full time in-school teaching for the academic year beginning in August / September 2021. Orders for the second quarter ended July 31, 2021 increased by 29.9% compared to the same period of the prior year.

~~Due to uncertainty created by COVID-19 during the year ended January 31, 2021,~~2022, the Company ~~moderated production levels to reflect the reduced order activity and maintained conservative inventory levels going into the current year. The current year~~ has ~~been characterized by severe supply chain issues,~~experienced a 27.9% increase in orders, most of which ~~were exacerbated by our low levels~~are for summer of ~~inventory going into the year. The Company has significant domestic manufacturing capabilities and manufactures the large majority of finished goods domestically, but~~2022 delivery. In addition, the Company ~~imports a number of components from manufacturers in China. The cost and timely delivery of these components have been adversely affected by difficulties at~~started the ports and by cost increases from China. The cost and availability of steel, plastic, and a variety of other raw materials has been extremely volatile, and the supply chain considerations have been challenging. The severe weather experienced in significant portions of the United States in February 2021 interrupted the supply and increased cost for plastic and utilities. The availability of labor, both permanent employees and temporary employees, has been severely impacted.

~~Because the first~~ quarter of the year is a seasonally slow period, sales activity during the first quarter was not significantly affected by the supply chain considerations. Sales volume for the first quarter ended April 30, 2021 increased by 59.2% compared to the same period of the prior year.

~~During the second quarter, which includes two of the three months~~with an order backlog that typically account for 50% of our annual sales, the supply chain issues have been challenging. Sales for the second quarter were flat compared to the same period of the prior year. Backlog of orders at July 31, 2021 was approximately $20 million greater than the prior year. This caused the Company’s backlog of unshipped orders at April 30, 2022 compared to April 30, 2021 to increase by nearly $36 million to $85.7 million compared to $49.7 million.

During the three-month period ended April 30, 2021 the Company incurred severe price increases in the cost of raw materials. By example the cost of steel, depending on type, increased by 50% to 100% during the quarter. In ~~response~~addition to increased costs the Company incurred shortages of domestically supplied materials including steel, plastic, resin, and wood. During the quarter ended April 30, 2021, the Company incurred labor shortages and had severe difficulty hiring both permanent and temporary labor. In comparison the quarter ended April 30, 2022 was characterized by continued high and increasing raw material costs, but did not incur the same severe spike in raw material costs incurred in the prior year. The Company raised factory wages by nearly $3 per hour in the fourth quarter of fiscal year ended January 31, 2022. This increased factory direct labor and overhead expenses, but allowed the Company to hire and retain adequate quantities of permanent and temporary labor. Production levels in the quarter ended April 30, 2022 increased by nearly 45% compared to the prior year. Increased levels of factory production and the related overhead absorption offset the effect of increased material and labor ~~shortage,~~expenses.

Supply chain disruptions from international sources – primarily China – continue to adversely affect operations and the competitive landscape. In the quarter ended April 30, 2021 obtaining materials from China was adversely affected by sharply increased freight costs and by severe disruptions in ocean freight at domestic ports. In the current quarter ended April 30, 2022 the port congestion has improved moderately and ocean freight costs have not been as volatile as in the prior year, but China’s severe lockdowns of major cities due to ~~reward employees who will be working substantial overtime hours during~~COVID has adversely affected shipments from China to the ~~seasonal summer peak,~~United States. Because the Company has announced that for all factory and warehouse hourly employees, all overtime hours will be paid at double time rather than the traditional time and one-half for hours worked between June 1 and continuing through the peak deliveries. This is anticipated to cost the Company an additional $1.5 - $2.0 million during the second and third quarters. The Company anticipates that this increased cost will be offset, in whole or in part, by the increased efficiency of using experienced Virco employees with a substantial reduction in temporary labor. Inventory levels at July 31, 2021 are significantly lower than the prior year, and the Company may incur additional costs for expediting to satisfy customer orders. While these challenges are substantial, the Companymaintained its domestic factories, management believes that the ~~benefits of domestic manufacturing~~Company will be less vulnerable to international supply chain disruption compared to ~~an import model with an extended supply~~competitors that source finished goods overseas, but the Company will still be affected by these international events.

Supply chain ~~to China will be realized~~disruptions in the construction industry did not significantly impact the quarter ended April 30, 2022, but may impact the timing of sales during the ~~current~~summer. Virco does not deliver furniture to new schools until the customer has an occupancy certificate. Construction delays could have the effect of delaying sales from the second quarter to the third quarter of fiscal year ending January 31, 2023.

The Russian invasion of Ukraine in February 2022 has caused oil and energy prices to spike markedly, which has increased the cost of plastic and freight. Due to seasonally low first quarter sales activity the impact of freight was not severe, but management believes it may be during the summer delivery season. In addition, approximately two thirds of the pig iron used in domestic steel production comes from Russia and Ukraine. During the quarter ended April 30, 2022 steel prices remained high, but did not increase compared to the fourth quarter ended January 31, 2022. This may have an adverse impact on the availability and cost of steel later in this fiscal year.

As discussed in the Risk Factors section of the Company’s Form 10-K for the fiscal year ended January 31, 2022, the Company utilizes one nationwide contract to price a significant portion of our orders. This contract/price list determines selling prices for goods and services for periods of one year and occasionally longer. Due to the current volatile nature of commodity and energy prices in addition to general inflation, the Company has negotiated the ability to increase prices for orders received after July 1 of each contract year in addition to the January 1 price increase.

Three Months Ended ~~July 31, 2021~~

Order rates for the three-months ended July 31, 2021 increased significantly compared to the prior year, as schools reopened. Orders for the second quarter increased by 29.9%, but sales were flat, decreasing by 0.7% compared to the same period of theApril 30, 2022

2117

prior year. Backlog of orders at July 31, 2021 is approximately $20.0 million greater than the prior year. The Company anticipates that a significant portion of the increased backlog will ship during the third quarter, with a portion delivered in the fourth quarter.

For the three months ended ~~July 31, 2021,~~April 30, 2022, the Company ~~earned~~incurred a pre-tax ~~profit~~loss of ~~$4,985,000~~$5,366,000 on sales of ~~$59,022,000~~$32,084,000 compared to a pre-tax ~~profit~~loss of ~~$6,679,000~~$5,094,000 on sales of ~~$59,456,000~~$28,367,000 in the prior year.

Gross ~~Margin~~profit for the ~~second~~first quarter was ~~37.8%~~30.3% of sales compared to ~~39.0%~~27.1% in the prior year. In order to recover the increased cost of materials and labor incurred in the prior year, the Company raised prices for all orders received after January 1, 2022. The impact of the price increase did not fully impact the first quarter. The Company started this fiscal year with an order backlog of over $40 million and the majority of this order backlog was received prior to the price increase. These lower priced orders shipped in the first quarter ended April 30, 2022 adversely affecting the gross ~~margin was affected~~margin.

Because the price increase did not substantially impact the quarter, the Company did not fully recover the cost increases in material and labor costs. Raw material cost increased by more than 5% of sales. Direct labor increased slightly as a percentage of sales. These increases were more than offset by increased ~~cost~~overhead absorption resulting from increased production levels. Order rates for ~~raw materials~~the three months ended April 30, 2022 increased by nearly 28% compared to the prior year. These orders were primarily for summer 2022 delivery and ~~costs relating to operating~~did not ship during the ~~factories~~first quarter ended April 30, 2022. In addition, the Company started the quarter with ~~a reduced and interrupted supply~~an order backlog that was approximately $20 million greater than the prior year. During the first quarter ended April 30, 2022 production levels increased by 45% in anticipation of ~~materials, partially offset by a price increase at the beginning~~substantially increased summer deliveries of ~~the year.~~furniture.

Selling, general and administrative expenses for the three months ended ~~July 31, 2021~~April 30, 2022 increased by approximately $2,468,000 compared to the same period last year. The increase in selling, general and administrative expenses was attributable in part to increased variable freight and service expense and by increased selling expenses. In addition, the Company incurred increased legal expenses in the first quarter of 2022 to enforce its intellectual property rights against a competitor in the school furniture market and for outside legal counsel to advise a special committee of the Board of Directors formed in May 2021 and terminated in May 2022. The special committee was formed to review and advise the Board on an unsolicited acquisition proposal with the assistance of independent legal counsel and an independent financial advisor, which proposal was ultimately rejected as ~~our sales force is now actively calling on customers.~~inadequate and not in the best interests of shareholders.

Interest expense ~~decreased~~increased by ~~$135,000~~$134,000 for the three months ended ~~July 31, 2021~~April 30, 2022 compared to the same period last year. The ~~Company has~~increase was primarily attributable to an increase in the amount borrowed ~~less money~~in 2022 to finance seasonal working capital in the ~~second quarter.~~first quarter and an increase in interest rate.

For the three months ended ~~July 31,~~April 30, 2022 and 2021, ~~and 2020,~~ the effective tax rates were ~~24.6%~~5.3% and ~~46.8%~~23.3%, respectively. ~~Effective~~The change in effective tax rates for the three months ended ~~July 31, 2021 and 2020 were~~April 30, 2022 was due primarily ~~due~~ to ~~the change in forecasted mix of income before taxes in various jurisdictions, estimated permanent differences and~~ the recording of a ~~partial~~ valuation allowance ~~on net~~needed for federal deferred tax ~~assets.~~

~~Six Months Ended July~~assets and certain state net operating loss carryforwards which commenced in the fourth quarter of fiscal year ended January 31, ~~2021~~

~~Order rates for~~2022 and continued through the ~~six-months ended July 31, 2021 increased by 28.5% compared to the prior year.~~

~~For the six-month~~ period ended ~~July 31, 2021 the Company earned a pre-tax loss of $109,000 on sales of $87,389,000 compared to a pre-tax loss of $1,294,000 on sales of $77,273,000.~~

~~Gross Margin~~April 30, 2022. Effective tax rate for the first ~~six months~~quarter ended April 30, 2021 was 34.3% of sales compared to 36.4% in the prior year. The gross margin was affected by increased cost for raw materials and costs relating to operating the factories with a reduced and interrupted supply of materials, partially offset by a price increase at the beginning of the year. The Company was required to close the Conway, Arkansas factory for more than one week in February due to severe weather and increased utility bills related to the same severe weather.

Selling, general and administrative expenses for the six months ended July 31, 2021 increased compared to the same period last year but decreased as a percentage of sales. The increase in selling, general and administrative expenses was attributable to increased variable freight and service expenses.

Interest expense decreased by $246,000 for the six months ended July 31, 2021 compared to the same period last year. The Company has borrowed less money to finance seasonal working capital during the year.

~~For the six months ended July 31, 2021 and 2020, the effective tax rates were (36.7)% and 11.5%, respectively. Effective tax rates for the six months ended July 31, 2021 and 2020 were~~ primarily due to the change in forecasted mix of income before taxes in various jurisdictions, estimated permanent differences and the recording of a partial valuation allowance on net deferred tax assets.

Liquidity and Capital Resources

~~In years not impacted by COVID,~~The market for education furniture is extremely seasonal and approximately 50% of the Company's annual sales volume is shipped in the months of June through August of each year. The Company traditionally manufactures large quantities of inventory during the first and second quarters of each fiscal year in anticipation of seasonally high summer shipments. In addition, the Company finances a large balance of accounts receivable during the peak season. As discussed above, the current year impact of COVID has moderated the summer peak deliveries, and the Company has operated with reduced levels of inventory. This has reduced the need for seasonal borrowing under our line of credit.

~~Accounts receivable~~Inventory increased by ~~$1,712,000~~$23,422,000 at ~~July 31, 2021~~April 30, 2022 compared to April 30, 2021. Approximately 40% of the ~~same date~~increase in inventory was valuation related to increased material and labor costs and the ~~prior year.~~other 60% was due to increased quantity. The increase in inventory was ~~primarily due to the timing of sales during the second quarter. Inventory decreased~~financed by ~~$7,051,000 at July 31, 2021 compared to the prior year. The decrease in units was more significant than the decrease in dollars due to the~~ increased ~~material cost of~~

~~the inventory. The net reduction in working capital enabled the Company to reduce its~~ borrowing under ~~its revolving~~the Company’s line of credit with PNC Bank asand increased vendor credit, which traditionally increases with increased purchases of ~~July 31, 2021. Outstanding debt at July 31, 2021 includes an equipment loan from PNC in the amount of $444,000 and a seller financed mortgage on a manufacturing facility in Conway, Arkansas.~~

~~Interest expense for the six months ended July 31, 2021 is less than the same period last year due to lower average outstanding borrowings under the Company's revolving line of credit with PNC Bank.~~materials.

Accrual basis capital expenditures for the ~~six~~three months ended ~~July 31, 2021 was $1,210,000~~April 30, 2022 were $627,000 compared to ~~$1,625,000~~$428,000 for the same period last year. The reduction in capital spending was a direct result of management controlling the expenditures to preserve cash due to the adverse impact that the COVID-19 pandemic had on the Company’s operations. Capital expenditures are being financed through the Company's credit facility with PNC Bank and operating cash flow and restricted to not exceed $8,000,000 by covenant.

~~Due~~The Company was in violation of its financial covenants under the Restated Credit Agreement as of January 31, 2022, due to an increase in the Company’s net loss primarily attributable to the ~~adverse impact~~effects of ~~the COVID-19 pandemic upon the Company’s operations,~~supply chain disruptions and labor shortages.On April 15, 2022, the Company ~~violated its fixed-charge coverage ratio contained in~~entered into Amendment No. 2 to the ~~credit agreement~~Revolving Credit and Security Agreement with PNC Bank, ~~for~~which implemented certain changes to the ~~quarterly periods ended July 31, 2020 and October 31, 2020. The Company obtained limited waivers and amendments from~~Company’s credit facility with PNC Bank, ~~for both events~~including the extension of ~~default, Amendment No. 21~~the final

maturity date of the facility to April 15, 2027 and ~~22 (see~~ ~~Note 7~~increasing the borrowing limit from $65,000,000 to $70,000,000 in July and August 2022, and from $40,000,000 to $45,000,000 in October 2022.

Based on the ~~condensed consolidated financial statements). Amendment No. 22 amended the ongoing fixed-charge coverage calculation to allow for the add back of certain~~Company’s current projections, including COVID-19 related costs, incurred from May 1, 2020 through April 30, 2021, not to exceed $2,000,000, to adjusted EBITDA and retained the minimum fixed-charge coverage ratio of 1.10:1.00 beginning with the fourth quarter period ended January 31, 2021. Based on the add back allowance for certain COVID-19 relatedraw material costs and ~~the current forecasts through September 2022,~~its ability to introduce price increases, management believes ~~the Company~~it will maintain compliance with the financial covenants within Amendment No. 2, although there are uncertainties there within, such as raw material costs and supply chain challenges.The Company was in compliance with its ~~financial covenants.~~debt covenants as of April 30, 2022. See Note 7 of Notes to Unaudited Consolidated Financial Statements under Item 1.

The Company believes that cash flows from operations, together with the Company's unused borrowing capacity with PNC Bank will be sufficient to fund the Company's debt service requirements, capital expenditures and working capital needs for the next twelve months.

Off Balance Sheet Arrangements

None.

Critical Accounting Policies and Estimates

The Company's critical accounting policies are outlined in its Annual Report on Form 10-K for the fiscal year ended January 31, ~~2021.~~2022.

Forward-Looking Statements

From time to time, including in this Quarterly Report on Form 10-Q for the quarterly period ended ~~July 31, 2021,~~April 30, 2022, the Company or its representatives have made and may make forward-looking statements, orally or in writing. Such forward-looking statements may be included in, without limitation, reports to stockholders, press releases, oral statements made with the approval of an authorized executive officer of the Company and filings with the Securities and Exchange Commission ("SEC"). The words or phrases “anticipates,” “expects,” “will continue,” “believes,” “estimates,” “projects,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The results contemplated by the Company's forward-looking statements are subject to certain risks and uncertainties that could cause actual results to vary materially from anticipated results, including without limitation, availability of funding for educational institutions, availability and cost of materials, ~~especially steel,~~ availability and cost of labor, demand for the Company's products, competitive conditions affecting selling prices and margins, capital costs and general economic conditions. Such risks and uncertainties are discussed in more detail in the Company's Form 10-K for the fiscal year ended January 31, ~~2021~~2022 under the caption "Risk Factors".

The Company's forward-looking statements represent its judgment only on the dates such statements were made. By making any forward-looking statements, the Company assumes no duty to update them to reflect new, changed or unanticipated events or circumstances.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, ~~as of our second quarter of fiscal 2021~~ and ~~are~~is therefore not required to provide the information under this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including its Principal Executive Officer along with its Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”) as of ~~July 31, 2021.~~April 30, 2022. Based upon the foregoing, the Company's Principal Executive Officer along with the Company's Principal Financial Officer concluded that the Company's disclosure controls and procedures as of such date were effective to ensure that the information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Company management, including its Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, Company management recognizes that any controls and procedures, no matter how well designed and

operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company's internal control over financial reporting during the fiscal quarter covered by this quarterly report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

2420

PART II — Other Information

Virco Mfg. Corporation

Item 1. Legal Proceedings

The Company is a party to various legal actions arising in the ordinary course of business which, in the opinion of the Company, are not material in that management either expects that the Company will be successful on the merits of the pending cases or that any liabilities resulting from such cases will be substantially covered by insurance. While it is impossible to estimate with certainty the ultimate legal and financial liability with respect to these actions, management believes that the aggregate amount of such liabilities will not be material to the results of operations, financial position, or cash flows of the Company.

Item 1A. Risk Factors

You should carefully consider and evaluate the information in this Quarterly Report and the risk factors set forth under the caption “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2021~~2022 (the “Form 10-K”), which was filed with the SEC on April 28, ~~2021.~~2022. The risk factors associated with our business have not materially changed compared to the risk factors disclosed in the Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ~~and Issuer Purchases of Equity Securities~~

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits


Exhibit Number			Document
10.1			Amendment No. 2 to Amended and Restated Revolving Credit and Security Agreement and Limited Waiver, dated April 15, 2022, by and among Virco Mfg. Corporation and Virco, Inc., as borrowers, and PNC Bank, National Association, as lender and administrative agent (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed with the Commission on April 21, 2022).
31.1			Certification of Robert A. Virtue, Chief Executive Officer, pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Certification of Robert E. Dose, Vice President, Finance, pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
32.1			Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 101.INS — XBRL Instance Document.

Exhibit 101.SCH — XBRL Taxonomy Extension Schema Document.

Exhibit 101.CAL — XBRL Taxonomy Extension Calculation Linkbase Document.

Exhibit 101.LAB — XBRL Taxonomy Extension Label Linkbase Document.

2521

Exhibit 101.PRE — XBRL Taxonomy Extension Presentation Linkbase Document.

2622

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	VIRCO MFG. CORPORATION
Date: ~~September 14, 2021~~June 10, 2022	By:	/s/ Robert E. Dose
		Robert E. Dose
		Vice President — Finance
		(Principal Financial Officer)

2723


	Three months ended
	7/31//2021		7/31/2020
	(In thousands)

Net income	$	3,760	$	3,553
Other comprehensive income:
Pension adjustments (net of tax expense of $803 and $120 at July 31, 2021 and 2020, respectively)	2,260		345
Net comprehensive income	$	6,020	$	3,898


	Three-Month Period Ended July 31, 2021
	Common Stock
In thousands, except share data	Shares	Amount		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholder's Equity
Balance at May 1, 2021	15,918,642	$	159	$	119,908	$	(55,951)	$	(13,258)	$	50,858
Net income	—	—		—		3,760		—		3,760
Cash dividends	—	—		—		—		—		—
Pension adjustments, net of tax effect of $803	—	—		—		—		2,260		2,260
Shares vested and others	183,381	2		(176)		—		—		(174)
Stock compensation expense	—	—		253		—		—		253
Balance at July 31, 2021	16,102,023	$	161	$	119,985	$	(52,191)	$	(10,998)	$	56,957



	Three-Month Period Ended July 31, 2020
	Common Stock
In thousands, except share data	Shares	Amount		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholder's Equity
Balance at May 1, 2020	15,713,549	$	157	$	119,036	$	(54,508)	$	(13,966)	$	50,719
Net income	—	—		—		3,553		—		3,553
Cash dividends	—	—		—		—		—		—
Pension adjustments, net of tax effect of $120	—	—		—		—		345		345
Shares vested and others	205,093	2		(139)		—		—		(137)
Stock compensation expense	—	—		252		—		—		252
Balance at July 31, 2020	15,918,642	$	159	$	119,149	$	(50,955)	$	(13,621)	$	54,732


	Six-Month Period Ended July 31, 2021
	Common Stock
In thousands, except share data	Shares	Amount		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive loss		Total Stockholder's Equity
Balance at February 1, 2021	15,918,642	$	159	$	119,655	$	(52,042)	$	(13,585)	$	54,187
Net loss	—	—		—		$	(149)	—		(149)
Cash dividends	—	—		—		—		—		—
Pension adjustments, net of tax effect of $919	—	—		—		—		2,587		2,587
Shares vested and others	183,381	2		(176)		—		—		(174)
Stock compensation expense	—	—		506		—		—		506
Balance at July 31, 2021	16,102,023	$	161	$	119,985	$	(52,191)	$	(10,998)	$	56,957


	Six-Month Period Ended July 31, 2020
	Common Stock
In thousands, except share data	Shares	Amount		Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive loss		Total Stockholder's Equity
Balance at February 1, 2020	15,713,549	$	157	$	118,782	$	(49,810)	$	(14,311)	$	54,818
Net loss	—	—		—		$	(1,145)	—		(1,145)
Cash dividends	—	—		—		—		—		—
Pension adjustments, net of tax effect of $240	—	—		—		—		690		690
Shares vested and others	205,093	2		(139)		—		—		(137)
Stock compensation expense	—	—		506		—		—		506
Balance at July 31, 2020	15,918,642	$	159	$	119,149	$	(50,955)	$	(13,621)	$	54,732


	Operating Lease
	(in thousands)
Remaining of 2022	$	2,903
2023	5,460
2024	5,319
2025	5,371
2026	1,350
Thereafter	—
Remaining balance of lease payments	$	20,403

Short-term lease liabilities	$	4,678
Long-term lease liabilities	13,429
Total lease liabilities	$	18,107

Difference between undiscounted cash flows and discounted cash flows	$	2,296