VIDEO DISPLAY CORP - Quarter Report: 2018 November (Form 10-Q)
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 November 30, 2018.
or
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Transition Period From to
Commission File Number 0-13394
VIDEO DISPLAY CORPORATION
(Exact name of registrant as specified on its charter)
GEORGIA | 58-1217564 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
1868 TUCKER INDUSTRIAL ROAD, TUCKER, GEORGIA 30084
(Address of principal executive offices)
770-938-2080
(Registrants telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 30, 2018, the registrant had 5,878,290 shares of Common Stock outstanding.
Table of Contents
Video Display Corporation and Subsidiaries
2
Table of Contents
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Balance Sheets (unaudited)
(in thousands)
November 30, 2018 |
February 28, 2018 |
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(unaudited) | ||||||||
Assets |
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Current assets |
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Cash and cash equivalents |
$ | 34 | $ | 81 | ||||
Trading investments, at fair value |
| 180 | ||||||
Accounts receivable, less allowance for doubtful accounts of $14 and $19 |
1,985 | 664 | ||||||
Note receivable due from officers and directors (Note 6) |
205 | 191 | ||||||
Inventories, net |
3,793 | 4,584 | ||||||
Costs in excess of billings |
371 | | ||||||
Prepaid expenses and other |
132 | 65 | ||||||
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Total current assets |
6,520 | 5,765 | ||||||
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Property, plant, and equipment |
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Land |
154 | 154 | ||||||
Buildings |
2,756 | 2,799 | ||||||
Machinery and equipment |
5,720 | 5,753 | ||||||
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8,630 | 8,706 | |||||||
Accumulated depreciation and amortization |
(7,336 | ) | (7,243 | ) | ||||
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Net property, plant, and equipment |
1,294 | 1,463 | ||||||
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Note receivable due from officers and directors (Note 6) |
243 | 398 | ||||||
Investment in real estate partnership-related party (Note 6) |
| 375 | ||||||
Other assets |
9 | 26 | ||||||
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Total assets |
$ | 8,066 | $ | 8,027 | ||||
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The accompanying notes are an integral part of these interim condensed consolidated statements.
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Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Balance Sheets (unaudited) (continued)
(in thousands)
November 30, 2018 |
February 28, 2018 |
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(unaudited) | ||||||||
Liabilities and Shareholders Equity |
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Current liabilities |
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Accounts payable |
$ | 1,441 | $ | 1,054 | ||||
Accrued liabilities |
348 | 877 | ||||||
Current maturities of long-term debt |
37 | 55 | ||||||
Customer deposits |
343 | 439 | ||||||
Notes payable to officers and directors (Note 6) |
205 | 191 | ||||||
Note payable for acquisition |
100 | 100 | ||||||
Line of credit |
384 | 227 | ||||||
Deferred rent |
| 60 | ||||||
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Total current liabilities |
2,858 | 3,003 | ||||||
Long-term debt, less current maturities |
| 23 | ||||||
Notes payable to officers and directors (Note 6) |
460 | 398 | ||||||
Other liabilities |
39 | 17 | ||||||
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Total liabilities |
3,357 | 3,441 | ||||||
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Shareholders Equity |
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Preferred stock, no par value 10,000 shares authorized; none issued and outstanding |
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Common stock, no par value 50,000 shares authorized; 9,732 issued; 5,878 outstanding at November 30, 2018 and 5,887 outstanding at February 28, 2018 |
7,293 | 7,293 | ||||||
Additional paid-in capital |
269 | 256 | ||||||
Retained earnings |
13,429 | 13,309 | ||||||
Treasury stock, shares at cost; 3,854 at November 30, 2018 and 3,845 at February 28, 2018 |
(16,282 | ) | (16,272 | ) | ||||
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Total shareholders equity |
4,709 | 4,586 | ||||||
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Total liabilities and shareholders equity |
$ | 8,066 | $ | 8,027 | ||||
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The accompanying notes are an integral part of these interim condensed consolidated statements.
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Table of Contents
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Income Statements (unaudited)
(in thousands, except per share data)
Three Months Ended November 30, |
Nine Months Ended November 30, |
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2018 | 2017 | 2018 | 2017 | |||||||||||||
Net sales |
$ | 4,170 | $ | 1,666 | $ | 11,512 | $ | 8,725 | ||||||||
Cost of goods sold |
3,074 | 1,810 | 8,541 | 7,794 | ||||||||||||
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Gross profit (loss) |
1,096 | (144 | ) | 2,971 | 931 | |||||||||||
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Operating expenses |
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Selling and delivery |
188 | 250 | 627 | 719 | ||||||||||||
General and administrative |
885 | 869 | 2,577 | 2,546 | ||||||||||||
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1,073 | 1,119 | 3,204 | 3,265 | |||||||||||||
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Operating profit (loss) |
23 | (1,263 | ) | (233 | ) | (2,334 | ) | |||||||||
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Other income (expense) |
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Interest expense |
(4 | ) | (4 | ) | (18 | ) | (12 | ) | ||||||||
Investment income/(loss) |
(18 | ) | 8 | 52 | 2 | |||||||||||
Other, net |
70 | 51 | 319 | 654 | ||||||||||||
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48 | 55 | 353 | 644 | |||||||||||||
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Income (loss) before income taxes |
71 | (1,208 | ) | 120 | (1,690 | ) | ||||||||||
Income tax expense (benefit) |
| (5 | ) | | | |||||||||||
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Net income (loss) |
$ | 71 | $ | (1,203 | ) | $ | 120 | $ | (1,690 | ) | ||||||
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Net income (loss) per share: |
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Net income (loss) per share-basic |
$ | .01 | $ | (0.20 | ) | $ | .02 | $ | (0.29 | ) | ||||||
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Net income (loss) per share-diluted |
$ | .01 | $ | (0.20 | ) | $ | .02 | $ | (0.29 | ) | ||||||
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Basic weighted average shares outstanding |
5,878 | 5,891 | 5,879 | 5,891 | ||||||||||||
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Diluted weighted average shares outstanding |
6,087 | 5,891 | 6,082 | 5,891 | ||||||||||||
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The accompanying notes are an integral part of these interim condensed consolidated statements.
5
Table of Contents
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Statement of Shareholders Equity
Nine Months Ended November 30, 2018 (unaudited)
(in thousands)
Common Shares * |
Share Amount |
Additional Paid-in Capital |
Retained Earnings |
Treasury Stock |
Total | |||||||||||||||||||
Balance, February 28, 2018 |
5,887 | $ | 7,293 | $ | 256 | $ | 13,309 | $ | (16,272 | ) | $ | 4,586 | ||||||||||||
Net income |
| | | 120 | | 120 | ||||||||||||||||||
Treasury stock purchase |
(9 | ) | (10 | ) | (10 | ) | ||||||||||||||||||
Share based compensation |
| | 13 | | | 13 | ||||||||||||||||||
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Balance, November 30, 2018 |
5,878 | $ | 7,293 | $ | 269 | $ | 13,429 | $ | (16,282 | ) | $ | 4,709 | ||||||||||||
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* | Common shares are shown net of treasury shares. |
The accompanying notes are an integral part of these interim condensed consolidated statements.
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Table of Contents
Video Display Corporation and Subsidiaries
Interim Condensed Consolidated Statements of Cash Flows (unaudited)
(in thousands)
Nine Months Ended November 30, |
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2018 | 2017 | |||||||
Operating Activities |
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Net income (loss) |
$ | 120 | $ | (1,690 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
199 | 175 | ||||||
Provision for doubtful accounts |
(5 | ) | (7 | ) | ||||
Provision for inventory reserve |
248 | 193 | ||||||
Non-cash charge for share based compensation |
13 | 58 | ||||||
Deferred rental income |
(60 | ) | (90 | ) | ||||
Realized/ Unrealized loss on investments |
(52 | ) | 2 | |||||
Other |
7 | 7 | ||||||
Changes in working capital items: |
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Accounts receivable |
(1,322 | ) | 2,181 | |||||
Inventories |
543 | 190 | ||||||
Prepaid expenses and other assets |
(45 | ) | 167 | |||||
Customer deposits |
(95 | ) | (315 | ) | ||||
Accounts payable and accrued liabilities |
(125 | ) | (417 | ) | ||||
Cost, estimated earnings and billings on uncompleted contracts |
(371 | ) | | |||||
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Net cash provided by (used in) operating activities |
(945 | ) | 454 | |||||
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Investing Activities |
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Capital expenditures |
(30 | ) | (396 | ) | ||||
Purchases of investments |
(981 | ) | (1,805 | ) | ||||
Acquisition of business, net of cash acquired |
| (100 | ) | |||||
Investment in LLC |
| (375 | ) | |||||
Proceeds from sale of investments |
1,317 | 1,552 | ||||||
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Net cash provided by (used in) investing activities |
306 | (1,124 | ) | |||||
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Financing Activities |
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Proceeds from related party loans |
387 | 100 | ||||||
Proceeds from sale of investment in LLC |
375 | | ||||||
Repayment of loans from related parties |
(170 | ) | | |||||
Repayments of long-term debt |
(41 | ) | | |||||
Proceeds from line of credit |
647 | 197 | ||||||
Purchase of treasury stock |
(10 | ) | | |||||
Repayments of line of credit |
(490 | ) | | |||||
Payments on marginal float |
(106 | ) | 353 | |||||
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Net cash provided by financing activities |
592 | 650 | ||||||
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Net change in cash and cash equivalents |
(47 | ) | (20 | ) | ||||
Cash and cash equivalents, beginning of year |
81 | 135 | ||||||
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Cash and cash equivalents, end of period |
$ | 34 | $ | 115 | ||||
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The accompanying notes are an integral part of these interim condensed consolidated statements.
7
Table of Contents
Video Display Corporation and Subsidiaries
November 30, 2018
Notes to Interim Condensed Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
The interim condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries after elimination of all significant intercompany accounts and transactions.
As contemplated by the Securities and Exchange Commission (the SEC or Commission) instructions to Form 10-Q, the following footnotes have been condensed and, therefore, do not contain all disclosures required in connection with annual consolidated financial statements. Reference should be made to the Companys year-end consolidated financial statements and notes thereto, including a description of the accounting policies followed by the Company, contained in its Annual Report on Form 10-K as of and for the fiscal year ended February 28, 2018, as filed with the Commission. There are no material changes in accounting policy during the nine months ended November 30, 2018.
The condensed consolidated financial information included in this report has been prepared by the Company, without audit. In the opinion of management, the interim condensed consolidated financial information included in this report contains all adjustments (all of which are normal and recurring) necessary for a fair presentation of the results for the interim periods. Nevertheless, the results shown for interim periods are not necessarily indicative of results to be expected for the full year. The February 28, 2018 consolidated balance sheet data was derived from the audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (U.S. GAAP).
Effective March 1, 2018 we adopted Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers and the additional related ASUs (ASC 606), which replaces existing revenue guidance and outlines a single set of comprehensive principles for recognizing revenue under GAAP. We elected the modified retrospective method upon adoption with no impact to the opening retained earnings or revenue reported.
The adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery of the Companys goods and services and will provide the financial statement readers with enhanced disclosures.
These standards provide guidance on recognizing revenue, including a five-step method to determine when revenue recognition is appropriate.
Step 1: Identify the contract with the customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations
Step 5: Recognize revenue as the Company satisfies a performance obligation
ASC 606 provides that revenue is recognized when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. We generally satisfy performance obligations upon shipment of the product or service to the customer. This is consistent with the time in which the customer obtains control of the product or service. For service contracts, which are transferred to the customer over time, revenue is recognized over time as the services are performed. Some contracts include installation services, which are completed in a short period of time and the revenue is recognized when the installation is complete. Customized products with no alternative future use to the Company, and that have an enforceable right to payment for performance completed to date, are also recorded over time. The Company considers this to be a faithful depiction of the transfer to the customer of revenue over time as the work or service is performed. Revenue is recognized as performance obligations are met, which includes design, manufacture of product/system, installation and set-up. In certain cases, we recognize revenue using the percentage-of-completion method of accounting. These are fixed price contracts. These types of contracts are satisfied over time. Based on the nature of products provided or services performed, revenue is recognized as costs are incurred (the percentage of completion cost to cost method).
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Table of Contents
Video Display Corporation and Subsidiaries
November 30, 2018
Revenue is measured as the amount of consideration the Company expects to receive in exchange for the transfer of goods or services. Performance obligations in a contract are identified based on the products or services that are transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service on its own or together with other resources and are distinct from other promises in the contract.
Recently Adopted Accounting Pronouncements
In May, 2014, the FASB issued ASU 2014-09, which created a single, comprehensive revenue recognition model for recognizing revenue from contracts with customers. The standard was effective for interim and annual reporting periods beginning after December 15, 2017 and may be adopted either retrospectively or on a modified retrospective basis. ASU 2014-09 did not result in a significant change in the judgement or timing associated with the recognition of revenue from the sale of the Companys products or services. The Company adopted ASU 2014-09 on March 1, 2018.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 increases transparency and comparability among organizations by requiring entities to recognize lease assets and lease liabilities on the balance sheet and disclose key information about the lease arrangements. The guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. The Company is in the process of evaluating the impact of this guidance on the Companys consolidated financial statements.
Note 2. Financial Condition and Going Concern
The accompanying interim condensed consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Even though the Company reported a small profit for the nine month period ending November 30, 2018 and a slight increase in working capital for the nine month period, the Company has sustained losses for each of the last three fiscal years and has seen overall a decline in working capital and liquid assets during this three year period. Annual losses over this time are due to a combination of decreasing revenues across certain divisions without a commensurate reduction of expenses. The Companys working capital and liquid asset position are presented below (in thousands) as of November 30, 2018 and February 28, 2018:
November 30, 2018 |
February 28, 2018 |
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Working capital |
$ | 3,680 | $ | 2,762 | ||||
Liquid assets |
$ | 34 | $ | 261 |
Management has implemented a plan to improve the liquidity of the Company. The Company has been fulfilling a plan to increase revenues at all the divisions, each structured to the particular division which has resulted with an increase in the growth in revenues. The Company has reduced other expenses at the divisions, as well as at the corporate location with the expectation that further decreases can be achieved. The Company has completed the merger of the two Florida businesses into one facility and the relocation of Lexel Imaging into a new facility. These changes are projected to realize annual savings through reduced expenses. Management continues to explore options to monetize certain long-term assets of the business. If additional and more permanent capital is required to fund the operations of the Company, no assurance can be given that the Company will be able to obtain the capital on terms favorable to the Company, if at all.
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Table of Contents
Video Display Corporation and Subsidiaries
November 30, 2018
The ability of the Company to continue as a going concern is dependent upon the success of managements plans to improve revenues, the operational effectiveness of continuing operations, the procurement of suitable financing, or a combination of these. The uncertainty regarding the potential success of managements plan create substantial doubt about the ability of the Company to continue as a going concern.
Note 3. Fair Value Measurements and Financial Instruments
The Financial Accounting Standards Boards (FASBs) fair value measurement guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:
Level 1 | Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. | |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Assets measured at fair value on a recurring basis by the Company consist of investment securities held for trading using Level 1 inputs. The Company liquidated all of its investments measured at fair value as of November 30, 2018. The following table sets forth financial assets and liabilities that were accounted for at fair value on a recurring basis as of February 28, 2018 (in thousands):
February 28, 2018 | Level 1 Assets and Liabilities |
Level 2 Assets and Liabilities |
Level 3 Assets and Liabilities |
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Current trading investments: |
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Stocks, options and ETF (long) |
291 | 291 | | | ||||||||||||
Stocks, options and ETF (short) |
(5 | ) | (5 | ) | ||||||||||||
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Total value of investments |
$ | 286 | $ | 286 | | | ||||||||||
Current Liabilities: |
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Margin balance |
(106 | ) | (106 | ) | ||||||||||||
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Total value of liabilities |
(106 | ) | (106 | ) | ||||||||||||
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Total |
$ | 180 | $ | 180 | | | ||||||||||
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The Companys financial instruments which are not measured at fair value on the consolidated balance sheets include cash, accounts receivable, short-term liabilities, and debt. The estimated fair value of these financial instruments were determined using Level 2 inputs and approximate cost due to the short period of time to maturity. Recorded amounts of long-term debt are considered to approximate fair value due to either interest rates that fluctuate with the market or are otherwise commensurate with the current market.
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Video Display Corporation and Subsidiaries
November 30, 2018
Note 4. Inventories
Inventories are stated at the lower of cost (first in, first out) or market and consisted of the following (in thousands):
November 30, 2018 |
February 28, 2018 |
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Raw materials |
$ | 3,765 | $ | 4,657 | ||||
Work-in-process |
676 | 403 | ||||||
Finished goods |
999 | 923 | ||||||
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5,440 | 5,983 | |||||||
Reserves for obsolescence |
(1,647 | ) | (1,399 | ) | ||||
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$ | 3,793 | $ | 4,584 | |||||
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Note 5. Long-Term Debt and Other Obligations
The Company has a $0.5 million line of credit with the Brand Banking Company with a current balance of $0.4 million at November 30, 2018. The line matures on February 18, 2019, is personally guaranteed by the Chief Executive Officer and has an interest rate of LIBOR plus 3.75%.
The Company has outstanding debt current of less than $0.1 million as of November 30, 2018 related to a previous acquisition secured by a building owned by its subsidiary, Teltron Technologies, Inc. in Birdsboro, PA.
The Company had no margin account borrowing as of November 30, 2018 and $0.1 million as of February 28, 2018. The margin account borrowings were used to purchase marketable equity securities and were historically netted against the investments in the balance sheet to show net trading investments. The Company liquidated the investment account as of November 30, 2018.
Long-term debt consisted of the following (in thousands):
November 30, | February 28, | |||||||
2018 | 2018 | |||||||
Mortgage payable to bank; interest rate at BB&T Bank base rate plus 0.5% (5.50% as of November 30, 2018); monthly principal and interest payments of $5 thousand payable through July, 2019; collateralized by land and building of Teltron Technologies, Inc. |
$ | 37 | $ | 78 | ||||
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37 | 78 | |||||||
Less current maturities |
(37 | ) | (55 | ) | ||||
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$ | | $ | 23 | |||||
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Video Display Corporation and Subsidiaries
November 30, 2018
Note 6. Related Party Transactions
On March 30, 2016, the Company entered into an assignment with recourse of the note receivable from Z-Axis Inc. (Z-Axis) with Ronald D. Ordway, CEO, and Jonathan R. Ordway, related parties, for the sum of $912 thousand. The note receivable is collateralized by a security interest in the shares of Z-Axis as well as a personal guaranty of its majority shareholder. Z-Axis is current on all scheduled payments regarding this note. The Company retains the right to repurchase the note at any time for 80% of the outstanding principle balance. Also, in the event of default by Z-Axis, the Company is obligated to repurchase the note for 80% of the remaining principle balance plus any accrued interest. Accordingly, the Company has recognized this transaction as secured borrowing in accordance with the provisions of ASC 860-10. The $0.9 million, 9% interest rate, note originated on March 30, 2016, with payments beginning on April 16, 2016 and continuing for 56 months thereafter. The balance of the note was $448 thousand and $589 thousand as of November 30, 2018 and February 28, 2018, respectively.
For the nine months ending November 30, 2018, the Company borrowed $387 thousand from Ronald D. Ordway, the CEO of the Company. As of November 30, 2018, the Company owes in aggregate $665 thousand to officers and directors.
On July 3, 2017, the Company and Ordway Properties, LLC purchased Honeyhill Properties, LLC which is the owner of the building at 510 Henry Clay Blvd. in Lexington, KY for $1,500,000. Video Display Corporation invested $500,000 towards the purchase price and accounted for the investment under the cost method since Ordway Properties, LLC was the majority owner. During the period ending November 30, 2017 the Company reduced its share in the LLC by $125,000, selling to Ordway Properties, LLC. In addition, during the period ending May 31, 2018, the Companys sold its remaining $375,000 ownership interest to Ordway Properties, LLC receiving $166,457 in cash and $208,543 in forgiveness of rent that was accrued and owed. There was no gain or loss on the sale. The building is the facility for the Companys Lexel Imaging subsidiary, which had previously signed a five (5) year lease agreement with Honeyhill Properties, LLC on June 15, 2017.
Note 7. Supplemental Cash Flow Information
Supplemental cash flow information is as follows (in thousands):
Nine Months Ended November 30, |
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2018 | 2017 | |||||||
Cash paid for: |
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Interest |
$ | 18 | $ | 13 | ||||
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Income taxes net of refunds |
| 23 | ||||||
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Non-cash activity: |
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Note receivable paid directly to officer |
$ | 142 | 130 | |||||
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|
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Note payable to officer |
$ | (142 | ) | (130 | ) | |||
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Reduction of accrued rent in lieu of cash received resulting from sale of remaining interest in Honeyhill interest (Note 6) |
$ | 209 | | |||||
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Imputed interest expense |
$ | 36 | 48 | |||||
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Imputed interest income |
$ | (36 | ) | (48 | ) | |||
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|
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Capital additions transferred from inventory |
$ | | 113 | |||||
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Video Display Corporation and Subsidiaries
November 30, 2018
Note 8. Shareholders Equity
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding during each period. Shares issued during the period are weighted for the portion of the period that they were outstanding. Diluted earnings (loss) per share is calculated in a manner consistent with that of basic earnings (loss) per share while giving effect to all potentially dilutive common shares that were outstanding during the period.
The following table presents a reconciliation of all the shares used in the calculation of basic and dilutive earnings (loss) per share for the three and nine month periods ended November 30, 2018 and 2017 (in thousands, except per share data):
Net Income (Loss) |
Weighted Average Common Shares Outstanding |
Earnings (Loss) Per Share |
||||||||||
Nine months ended November 30, 2018 |
||||||||||||
Basic |
$ | 120 | 5,879 | $ | 0.02 | |||||||
Effect of dilution: |
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Options |
| 200 | | |||||||||
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Diluted |
$ | 120 | 6,079 | $ | 0.02 | |||||||
Nine months ended November 30, 2017 |
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Basic |
$ | (1,690 | ) | 5,891 | $ | (0.29 | ) | |||||
Effect of dilution: |
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Options |
| | | |||||||||
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Diluted |
$ | (1,690 | ) | 5,891 | $ | (0.29 | ) | |||||
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Three months ended November 30, 2018 |
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Basic |
$ | 71 | 5,878 | $ | 0.01 | |||||||
Effect of dilution: |
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Options |
| 200 | | |||||||||
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Diluted |
$ | 71 | 6,078 | $ | 0.01 | |||||||
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Three months ended November 30, 2017 |
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Basic |
$ | (1,203 | ) | 5,891 | $ | (0.20 | ) | |||||
Effect of dilution: |
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Options |
| | | |||||||||
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Diluted |
$ | (1,203 | ) | 5,891 | $ | (0.20 | ) | |||||
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The number of anti-dilutive equity-based compensation awards during fiscal 2018 and 2017 was immaterial.
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Video Display Corporation and Subsidiaries
November 30, 2018
Stock-Based Compensation Plans
For the nine-month period ended November 30, 2018 and 2017, the Company recognized general and administrative expenses of $13 thousand and $58 thousand, respectively, related to share-based compensation. As of November 30, 2018, and November 30, 2017 total unrecognized compensation costs related to stock options granted was $12 thousand and $35 thousand, respectively. The unrecognized stock option compensation cost is expected to be recognized over a period of approximately 1 year.
The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model, which requires the Company to estimate the expected term of the stock option grants and expected future stock price volatility over the term. The term represents the expected period of time the Company believes the options will remain outstanding based on historical information. Estimates of expected future stock price volatility are based on the historic volatility of the Companys common stock, which represents the standard deviation of the differences in the weekly stock closing price, adjusted for dividends and stock splits.
No options were granted for the nine month period ending November 30, 2018 with 200,000 options granted during the nine month period ended November 30, 2017.
Stock Repurchase Program
The Company has a stock repurchase program, pursuant to which it had been authorized to repurchase up to 2,632,500 shares of the Companys common stock in the open market. On January 20, 2014, the Board of Directors of the Company approved a one-time continuation of the stock repurchase program, and authorized the Company to repurchase up to 1,500,000 additional shares of the Companys common stock in the open market. There is no minimum number of shares required to be repurchased under the program.
For the nine months ending November 30, 2018, the Company repurchased 8,858 shares at an average cost of $1.12 per share and for the nine months ending November 30, 2017, the Company did not purchase any shares of the Video Display Corporation stock. Under the Companys stock repurchase program, an additional 490,186 shares remain authorized to be repurchased by the Company at November 30, 2018.
Note 9. Income Taxes
Due to the Companys overall and historical net loss position, no income tax expense was reported for the nine month period ending November 30, 2018 and the nine month period ending November 30, 2017. Due to continued losses reported by the Company, a full valuation allowance was allocated to the deferred tax asset created by these losses.
Note 10. Legal Proceedings
The Company is involved in various legal proceedings related to claims arising in the ordinary course of business. We are not currently a party to any legal proceedings the result of which we believe is likely to have a material adverse impact on our business, financial position, results of operation or cash flows.
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Video Display Corporation and Subsidiaries
November 30, 2018
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached interim condensed consolidated financial statements and with the Companys 2018 Annual Report to Shareholders, which included audited condensed consolidated financial statements and notes thereto as of and for the fiscal year ended February 28, 2018, as well as Managements Discussion and Analysis of Financial Condition and Results of Operations.
Overview
The Company manufactures and distributes a wide range of display devices, encompassing, among others, industrial, military, medical, and simulation display solutions. The Company is comprised of one segment - the manufacturing and distribution of displays and display components. The Company is organized into five interrelated operations aggregated into one reportable segment.
| Simulation and Training Products offers a wide range of projection display systems for use in training and simulation, military, medical, entertainment and industrial applications. |
| Cyber Secure Products offers advanced TEMPEST technology, and (EMSEC) products. This business also provides various contract services including the design and testing solutions for defense and niche commercial uses worldwide. |
| Data Display CRTs offers a wide range of CRTs for use in data display screens, including computer terminal monitors and medical monitoring equipment. |
| Broadcast and Control Center Products offers high-end visual display products for use in video walls and command and control centers. |
| Other Computer Products offers a variety of keyboard products. |
During fiscal 2019, management of the Company is focusing key resources on strategic efforts to grow its business through internal sales of the Companys more profitable product lines and reduce expenses in all areas of the business to bring its cost structure in line with the current size of the business. Challenges facing the Company during these efforts include:
Liquidity The accompanying interim condensed consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Even though the Company reported a small profit for the nine month period ending November 30, 2018 and a slight increase in working capital for the nine month period, the Company has sustained losses for each of the last three fiscal years and has seen overall a decline in working capital and liquid assets during this three year period. Annual losses over this time are due to a combination of decreasing revenues across certain divisions without a commensurate reduction of expenses. The Companys working capital and liquid asset position are presented below (in thousands) as of November 30, 2018 and February 28, 2018:
November 30, 2018 |
February 28, 2018 |
|||||||
Working capital |
$ | 3,680 | $ | 2,762 | ||||
Liquid assets |
$ | 34 | $ | 261 |
Management has implemented a plan to improve the liquidity of the Company. The Company has been fulfilling a plan to increase revenues at all the divisions, each structured to the particular division which has resulted with an increase in the growth in revenues. The Company has reduced other expenses at the divisions, as well as at the corporate location
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Video Display Corporation and Subsidiaries
November 30, 2018
with the expectation that further decreases can be achieved. The Company has completed the merger of the two Florida businesses into one facility and the relocation of Lexel Imaging into a new facility. These changes are projected to realize annual savings through reduced expenses. Management continues to explore options to monetize certain long-term assets of the business. If additional and more permanent capital is required to fund the operations of the Company, no assurance can be given that the Company will be able to obtain the capital on terms favorable to the Company, if at all.
The ability of the Company to continue as a going concern is dependent upon the success of managements plans to improve revenues, the operational effectiveness of continuing operations, the procurement of suitable financing, or a combination of these. The uncertainty regarding the potential success of managements plan create substantial doubt about the ability of the Company to continue as a going concern.
Inventory management The Companys business units utilize different inventory components than the divisions had in the past. The Company has a monthly reserve at each of its divisions to offset any obsolescence although most purchases are for current orders, which should reduce the amount of obsolescence in the future. The Company still has CRT inventory in stock and component parts for legacy products, although it believes the inventory will be sold in the future, will continue to reserve for any additional obsolescence. Management believes its inventory reserves at November 30, 2018 and February 28, 2018 are adequate.
Results of Operations
The following table sets forth, for the three and nine months ended November 30, 2018 and 2017, the percentages that selected items in the Interim Condensed Consolidated Statements of Operations bear to total sales:
Three Months Ended November 30, |
Nine Months Ended November 30, |
|||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Sales |
||||||||||||||||
Simulation and Training (VDC Display Systems) |
31.4 | % | 48.8 | % | 38.6 | % | 28.0 | |||||||||
Data Display CRT (Lexel and Data Display) |
13.8 | 15.0 | 13.1 | 35.6 | ||||||||||||
Broadcast and Control Centers (AYON Visual) |
0.3 | 1.2 | 1.6 | 10.0 | ||||||||||||
Cyber Secure Products (AYON Cyber Security) |
45.2 | 35.0 | 37.4 | 26.4 | ||||||||||||
Other Computer Products (Unicomp) |
9.3 | | 9.3 | | ||||||||||||
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Total Company |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | |||||||||
Costs and expenses |
||||||||||||||||
Cost of goods sold |
73.7 | % | 108.7 | % | 74.2 | % | 89.3 | |||||||||
Selling and delivery |
4.5 | 15.0 | 5.4 | 8.2 | ||||||||||||
General and administrative |
21.2 | 52.1 | 22.4 | 29.2 | ||||||||||||
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99.4 | % | 175.8 | % | 102.0 | % | 126.7 | ||||||||||
Operating income (loss) |
0.6 | % | (75.8 | )% | (2.0 | )% | (26.7 | ) | ||||||||
Interest income/expense |
(0.1 | )% | (0.3 | )% | (0.2 | )% | (0.1 | ) | ||||||||
Other income, net |
1.2 | 3.6 | 3.2 | 7.5 | ||||||||||||
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Income (loss) before income taxes |
1.7 | % | (72.5 | )% | 1.0 | % | (19.4 | ) | ||||||||
Income tax benefit |
| 0.3 | | | ||||||||||||
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Net income (loss) |
1.7 | % | (72.2 | )% | 1.0 | % | (19.4 | ) | ||||||||
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Video Display Corporation and Subsidiaries
November 30, 2018
Net sales
Consolidated net sales increased 31.9% for the nine months ended November 30, 2018 and 150.2% for the three months ended November 30, 2018 compared to the nine months and three months ended November 30, 2017. The Companys AYON Cyber Security (ACS) division is up 103.8% for the nine months ending November 30, 2018 compared to the nine months last year. ACS business has been steadily growing over the past year and their backlog was $1.3 million at November 30, 2018. For the three months ending November 30, 2018, ACS was up 378.9% with steady shipments to its two largest customers. The Display Systems division was up by 81.6% and 61.1% for the nine months and three months ended November 30, 2018 compared to the comparable periods last year. The division had strong sales with their top customer, Lockheed Martin and with a large government contract this year. They are working on other projects with Lockheed Martin and expect to continue to do well with this account. The Data Display division showed a decrease of 51.4% for the nine months ended November 30, 2018 due to decreases throughout their customer base, the completion of a large long term order with a foreign customer by the Lexel division, and the sale of certain assets of the Lexel division. The Lexel division will expect less revenues going forward as certain assets and business were sold in June, 2017 and the division is also uncertain of orders from one of their large customers. They have received some large orders from foreign customers which should help with their sales for the remainder of the fiscal year. This division did have a 129.8% increase for the comparable three month period ended November 30, 2018 as business did increase as Lexels production began to stabilize after the plant move from last year. AYON Visual Solutions (AVS) sales decreased by 78.2% and 32.0% for the nine months and three months ended November 30, 2018. This divisions sales are primarily driven by large contracts. It had none in the nine months ended November 30, 2018 and had competed one in the first quarter last year. The division did receive a large contract of $1.3 million which will ship in the next fiscal year. The divisions primary supplier was sold to a competitor of the Company, so the future of this division is uncertain. The other increase in sales was from the Companys new keyboard division, which posted sales of $1.1 million and $0.4 million for the nine months and three months ended November 30, 2018 respectively. The Company acquired this company in October of 2017. This division is expected to continue at this level of sales each quarter.
Gross margins
Consolidated gross margins increased both as a percentage to sales (25.8% to 10.7%) and actual dollars ($2,971 thousand to $931 thousand) for the nine months ended November 30, 2018 compared to the nine months ended November 30, 2017. Gross margins increased for the three months ended November 30, 2018 compared to the three months ended November 30, 2017, both as a percentage to sales (26.3% to (8.7)%) and actual dollars, ($1,096 thousand to $(144) thousand).
The two Florida divisions performed well as the move to one facility is showing results. Both divisions showed large increases in both their gross margin percentage to sales and in actual dollars. AYON Cyber Security (ACS) gross margin percentage was 48.1% compared to 28.0% and the gross margin dollars were $2,068 thousand compared to $591 thousand for the nine months ended November 30, 2018 compared to the nine months ended November 30, 2017. For the three months ended November 30, 2018 compared to the same period last year, ACS gross margin percentage was 45.0% compared to 41.5% and gross margin dollars were $848 thousand compared to $163 thousand. VDC Display Systems (VDCDS) gross margin percentage was 10.9% compared 3.2% and the gross margin dollars were $485 thousand compared to $78 thousand for the nine months ended November 30, 2018 compared to the nine months ended November 30, 2017. For the three months ended November 30, 2018 compared to the same period last year, VDCDS gross margin percentage was 5.7% compared to 2.3%. Gross margin dollars were $74 thousand compared to $19 thousand. The new keyboard division, Unicomp, had $467 thousand of gross margin dollars or 43.7% to sales for the nine months ended November 30, 2018 and $155 thousand of gross margin dollars or 40.1% for the three months ended November 30, 2018.
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November 30, 2018
The other two divisions had an erosion of margins due to poor sales as discussed in the sales section above. The Data Display division had a negative $105 thousand in gross margin dollars and the AYON Visual Solution (AVS) division had $57 thousand for the nine months ended November 30, 2018. The Data Division is expected to do better in the next quarter as the Lexel facility is expected to do better as a result of the foreign orders discussed in the sales section above. AVS division has been absorbed in the VDCDS division and has received the large order for a video wall for a major electrical company. It is scheduled to be installed in the Companys next fiscal year.
Operating expenses
Operating expenses decreased by 1.9% or $61 thousand for the nine months ended November 30, 2018 compared to the nine months ended November 30, 2017. The decrease was due to legal expenses of $133 thousand associated with the bankruptcy proceedings with Lexel Imaging and the legal expenses for the sale of certain assets of Lexel Imaging in the first quarter last year offset by higher engineering salaries at AYON Cyber Security and additional administration expenses of $382 thousand at Unicomp, the acquired keyboard division. Operating expenses decreased by 4.1% or $46 thousand for the three months ended November 30, 2018 compared to the three months ended November 30, 2017. The Company expects to continue to reduce costs while increasing revenues with the completion of the consolidation of its two Florida businesses to one location, the move of Lexel Imaging to a much lower cost facility and further consolidation of operations by merging the two Tucker business units, one into Lexel Imaging and the other into the Florida operations in the upcoming quarter.
Interest expense
Interest expense was $18 thousand for the nine months ending November 30, 2018 and $4 thousand for the three months ending November 30, 2018 and $12 thousand for the nine months ending November 30, 2017 and $4 for the three months ending November 30, 2017. The interest expense is related to the balance owed on a building the Company owns in Pennsylvania, the line of credit at the Companys bank and the interest on the margin balance in the Companys investment account, which is a 3.75% rate.
Other Income/ expense
For the nine months ended November 30, 2018, the Company had $129 thousand in royalty income, $128 thousand in rental income, $33 thousand on the gain on the sale of equipment and $29 thousand in other, and $52 in investment gains including dividends. For the three months ended November 30, 2018 the Company had $40 thousand in rental income, $16 thousand in royalty income, $18 thousand in investment losses and $14 thousand in other. For the nine months ended November 30, 2017, the Company earned $294 thousand on the sale of certain assets to a competitor, $208 thousand on royalties, $126 thousand in rental income and another net of $29 thousand on other income and expenses. For the three months ended November 30, 2017 the Company had other income of $59 thousand dollars, primarily $55 in rental income.
Income taxes
Due to the Companys overall and historical net loss position, no income tax expense was reported for the nine month period ending November 30, 2018 nor for the comparable period in the prior year. Due to continued losses reported by the Company, a full valuation allowance was allocated to the deferred tax asset created by these losses.
Liquidity and Capital Resources
The accompanying interim condensed consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Even though the Company reported a small profit for the nine month period ending November 30, 2018 and a slight increase in working
18
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Video Display Corporation and Subsidiaries
November 30, 2018
capital for the nine month period, the Company has sustained losses for each of the last three fiscal years and has seen overall a decline in working capital and liquid assets during this three year period. Annual losses over this time are due to a combination of decreasing revenues across certain divisions without a commensurate reduction of expenses. The Companys working capital and liquid asset position are presented below (in thousands) as of November 30, 2018 and February 28, 2018:
November 30, 2018 |
February 28, 2018 |
|||||||
Working capital |
$ | 3,680 | $ | 2,762 | ||||
Liquid assets |
$ | 34 | $ | 261 |
Management has implemented a plan to improve the liquidity of the Company. The Company has been fulfilling a plan to increase revenues at all the divisions, each structured to the particular division which has resulted with an increase in the growth in revenues. The Company has reduced other expenses at the divisions, as well as at the corporate location with the expectation that further decreases can be achieved. The Company has completed the merger of the two Florida businesses into one facility and the relocation of Lexel Imaging into a new facility. These changes are projected to realize annual savings through reduced expenses. Management continues to explore options to monetize certain long-term assets of the business. If additional and more permanent capital is required to fund the operations of the Company, no assurance can be given that the Company will be able to obtain the capital on terms favorable to the Company, if at all.
The ability of the Company to continue as a going concern is dependent upon the success of managements plans to improve revenues, the operational effectiveness of continuing operations, the procurement of suitable financing, or a combination of these. The uncertainty regarding the potential success of managements plan create substantial doubt about the ability of the Company to continue as a going concern.
Cash used by operations for the nine months ended November 30, 2018 was $0.9 million. The net profit from operations was $0.1 million and adjustments to reconcile net profit to net cash were $0.4 million including inventory reserves, depreciation and non-cash charges for share based compensation. Changes in working capital used $1.4 million, primarily due to an increase in accounts receivable of $1.3 million, an increase in customer deposits of $0.1 million, offset by cost, estimated earnings, and billings on uncompleted contracts of $0.4 million, and offset by a decrease in inventories of $0.5 million. Cash provided by operations for the nine months ended November 30, 2017 was $0.5 million. The net loss from operations was $1.7 million and adjustments to reconcile net loss to net cash were $0.3 million including inventory reserves, depreciation and non-cash charges for share based compensation. Changes in working capital provided $1.8 million, primarily due to a decrease in accounts receivable of $2.1 million, smaller adjustments totaling $0.4 million, offset by an increase in accounts payable of $0.4 million, a decrease in customer deposits of $0.3 million.
Investing activities provided $0.3 million. $1.0 million was used for the purchase of investment securities offset by $1.3 million for the sale of investment securities for the nine months ended November 30, 2018. Investing activities used $1.0 million for the nine months ended November 30, 2017. $1.8 million was used for the purchase of investment securities, $0.4 million for the purchase of a one third interest in an LLC (owns building rented by Lexel Imaging), and $0.4 million for capital improvements offset by $1.6 million for the sale of investment securities.
Financing activities provided $0.6 million for the nine months ended November 30, 2018. The sale of an LLC provided $0.4 million, loans from the Companys CEO provided another $0.4 million and borrowings from the line of credit provided $0.6 million. This was offset by repayments to the line of credit of $0.5 million, repayment of margin borrowing in the Companys investment account of $0.1 million and repayment of other debt including related parties. Financing activities provided $0.6 million for the nine months ended November 30, 2017. Marginal float in the investment account provided $0.4 million, the line of credit provided $0.2 million.
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Video Display Corporation and Subsidiaries
November 30, 2018
The Company has a stock repurchase program, pursuant to which it has been authorized to repurchase up to 2,632,500 shares of the Companys common stock in the open market. On January 20, 2014, the Board of Directors of the Company approved a one-time continuation of the stock repurchase program, and authorized the Company to repurchase up to 1,500,000 additional shares of the Companys common stock on the open market, depending on the market price of the shares. There is no minimum number of shares required to be repurchased under the program.
For the nine months ending November 30, 2018, the Company repurchased 8,858 shares at an average cost of $1.12 per share and for the nine months ending November 30, 2017, the Company did not purchase any shares of the Video Display Corporation stock. Under the Companys stock repurchase program, an additional 490,186 shares remain authorized to be repurchased by the Company at November 30, 2018.
Critical Accounting Estimates
Managements Discussion and Analysis of Financial Condition and Results of Operations are based upon the Companys interim condensed consolidated financial statements. These interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the interim condensed consolidated financial statements and related notes. The accounting policies that may involve a higher degree of judgments, estimates, and complexity include reserves on inventories, revenue recognition, and the sufficiency of the valuation reserve related to deferred tax assets. The Company uses the following methods and assumptions in determining its estimates:
Reserves on Inventories
Reserves on inventories result in a charge to operations when the estimated net realizable value declines below cost. Management regularly reviews the Companys investment in inventories for declines in value and establishes reserves when it is apparent that the expected net realizable value of the inventory falls below its carrying amount. Management reviews inventory levels on a quarterly basis. Such reviews include observations of product development trends of the original equipment manufacturers, new products being marketed, and technological advances relative to the product capabilities of the Companys existing inventories. Management believes its inventory reserves at November 30, 2018 and February 28, 2018 are adequate.
Revenue Recognition
Effective March 1, 2018 we adopted Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers and the additional related ASUs (ASC 606), which replaces existing revenue guidance and outlines a single set of comprehensive principles for recognizing revenue under GAAP. These standards provide guidance on recognizing revenue, including a five-step method to determine when revenue recognition is appropriate. ASC 606 provides that revenue is recognized when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. We generally satisfy performance obligations upon delivery of the product or service to the customer. This is consistent with the time in which the customer obtains control of the product or service. In certain cases, we recognize revenue using the percentage-of-completion method of accounting. Based on the nature of products provided or services performed, revenue is recognized as costs are incurred (the percentage of completion cost to cost method). We elected the modified retrospective method upon adoption with no impact to the opening retained earnings or revenue reported.
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Video Display Corporation and Subsidiaries
November 30, 2018
Other Loss Contingencies
Other loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. Disclosure is required when there is a reasonable possibility that the ultimate loss will exceed the recorded provision. Contingent liabilities are often resolved over long time periods. Estimating probable losses requires analysis of multiple factors that often depend on judgments about potential actions by third parties.
Income Taxes
Deferred income taxes are provided to reflect the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of November 30, 2018 and February 28, 2018 the Company has established a valuation allowance of $5.8 million for both periods on the Companys current and non-current deferred tax assets.
The Company accounts for uncertain tax positions under the provisions of ASC 740, which contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Companys tax positions and tax benefits, which may require periodic adjustments. At November 30, 2018, the Company did not record any liabilities for uncertain tax positions.
Recent Accounting Pronouncements
In May, 2014, the FASB issued ASU 2014-09, which created a single, comprehensive revenue recognition model for recognizing revenue from contracts with customers. The standard was effective for interim and annual reporting periods beginning after December 15, 2017 and may be adopted either retrospectively or on a modified retrospective basis. ASU 2014-09 did not result in a significant change in the judgement or timing associated with the recognition of revenue from the sale of the Companys products or services. The Company adopted ASU 2014-09 on March 1, 2018. See Note 1 for additional information.
In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 increases transparency and comparability among organizations by requiring entities to recognize lease assets and lease liabilities on the balance sheet and disclose key information about the lease arrangements. The guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted. The Company is in the process of evaluating the impact of this guidance on the Companys consolidated financial statements.
Forward-Looking Information and Risk Factors
This report contains forward-looking statements and information that is based on managements beliefs, as well as assumptions made by, and information currently available to management. When used in this document, the words anticipate, believe, estimate, intends, will, and expect and similar expressions are intended to identify forward-looking statements. Such statements involve a number of risks and uncertainties. These risks and uncertainties, which are included under Part I, Item 1A. Risk Factors in the Companys Annual Report on Form 10-K for the year ended February 28, 2018 could cause actual results to differ materially.
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November 30, 2018
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Companys primary market risks include changes in technology. The Company operates in an industry which is continuously changing. Failure to adapt to the changes could have a detrimental effect on the Company.
ITEM 4. CONTROLS AND PROCEDURES
Our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, such as this quarterly report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.
Our chief executive officer and chief financial officer have conducted an evaluation of the effectiveness of our disclosure controls and procedures as of November 30, 2018. We perform this evaluation on a quarterly basis so that the conclusions concerning the effectiveness of our disclosure controls and procedures can be reported in our annual report on Form 10-K and quarterly reports on Form 10-Q. Based on this evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of November 30, 2018.
Changes in Internal Controls
There have not been any changes in our internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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Video Display Corporation and Subsidiaries
November 30, 2018
Item 1. | Legal Proceedings |
None.
Item 1A. | Risk Factors |
Information regarding risk factors appears under the caption Forward-Looking Statements and Risk Factors in Part I, Item 2 of this Form 10-Q and in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended February 28, 2018. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 3. | Defaults upon Senior Securities |
None.
Item 4. | Submission of Matters to a Vote of Security Holders |
None.
Item 5. | Other information |
None.
Item 6. | Exhibits |
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Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
VIDEO DISPLAY CORPORATION | ||||||
January 18, 2019 | By: | /s/ Ronald D. Ordway | ||||
Ronald D. Ordway | ||||||
Chief Executive Officer | ||||||
January 18, 2019 | By: | /s/ Gregory L. Osborn | ||||
Gregory L. Osborn | ||||||
Chief Financial Officer |
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