VIDEO DISPLAY CORP - Quarter Report: 2021 May (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company

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 May 31, 2021.

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

For the Transition Period From

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.)

5155 KING STREET, COCOA, FLORIDA 32926

(Address of principal executive offices)

800-241-5005

(Registrant’s telephone number including area code)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	VIDE	OTCMKTS

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

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 ☐

As of May 31, 2021, the registrant had 5,878,290 shares of Common Stock outstanding.

Table of Contents

Video Display Corporation and Subsidiaries

Index


PART I.	FINANCIAL INFORMATION		Page

	Item 1.	Financial Statements.

		Interim Condensed Consolidated Balance Sheets – May 31, 2021 (unaudited) and February 28, 2021	3

		Interim Condensed Consolidated Statements of Operations - Three months ended May 31, 2021 and 2020 (unaudited)	5

		Interim Condensed Consolidated Statements of Shareholders’ Equity - Three months ended May 31, 2021 and 2020 (unaudited)	6

		Interim Condensed Consolidated Statements of Cash Flows – Three months ended May 31, 2021 and 2020 (unaudited)	7

		Notes to Interim Condensed Consolidated Financial Statements - (unaudited)	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	14

	Item 3.	Quantitative and Qualitative Disclosure About Market Risk.	20

	Item 4.	Controls and Procedures.	20

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings.	21

	Item 1A.	Risk Factors.	21

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	21

	Item 3.	Defaults upon Senior Securities.	21

	Item 4.	Submission of Matters to a Vote of Security Holders.	21

	Item 5.	Other Information.	21

	Item 6.	Exhibits.	21

	SIGNATURES		22
	31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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ITEM 1 – FINANCIAL STATEMENTS

Video Display Corporation and Subsidiaries

Interim Condensed Consolidated Balance Sheets (unaudited)

(in thousands)


	May 31, 2021			February 28, 2021
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	842		$	293
Accounts receivable, less allowance for doubtful accounts of $6 and $12		434			1,314
Inventories, net		3,929			4,027
Contract assets		1,021			1,534
Prepaid expenses and other current assets		320			279

Total current assets		6,546			7,447

Property, plant, and equipment
Buildings		772			766
Construction in progress		—			130
Machinery and equipment		5,309			5,162

		6,081			6,058
Accumulated depreciation		(5,042	)		(4,979	)

Net property, plant, and equipment		1,039			1,079
Right of use assets under operating leases		996			1,127
Intangible assets, net		215			247
Other noncurrent assets		2			2

Total assets	$	8,798		$	9,902

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)


	May 31, 2021			February 28, 2021
	(unaudited)
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$	528		$	602
Accrued liabilities		652			728
Customer deposits		1,667			1,717
Note payable		86			100
Current maturities of financing lease obligations		98			98
Current operating lease liabilities		573			601

Total current liabilities		3,604			3,846
PPP related loans, noncurrent		1,084			1,084
Finance lease obligations less current maturities		124			142
Long-term operating lease liabilities		457			556

Total liabilities		5,269			5,628

Shareholders’ Equity
Preferred stock, no par value – 10,000 shares authorized; none issued and outstanding		—			—
Common stock, no par value – 50,000 shares authorized; 9,732 issued and 5,878 outstanding at May 31, 2021, and at February 28, 2021		7,293			7,293
Additional paid-in capital		281			281
Retained earnings		12,237			12,982
Treasury stock, shares at cost; 3,854 at May 31, 2021 and February 28, 2021		(16,282	)		(16,282	)

Total shareholders’ equity		3,529			4,274

Total liabilities and shareholders’ equity	$	8,798		$	9,902

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 Statements of Operations (unaudited)

(in thousands, except per share data)


	Three Months Ended May 31,
	2021			2020
Net sales	$	1,857		$	3,705
Cost of goods sold		1,490			2,727

Gross profit		367			978

Operating expenses
Selling and delivery		158			206
General and administrative		993			997

		1,151			1,203

Operating loss		(784	)		(225	)

Other income (expense)
Interest (expense) income, net		(10	)		(15	)
Investment (loss) gains, net		—			(10	)
Other, net		49			242

		39			217

Loss before income taxes		(745	)		(8	)
Income tax expense		—			—

Net loss	$	(745	)	$	(8	)

Net loss per share:
Net loss per share-basic	$	(0.13	)	$	(0.00	)

Net loss per share-diluted	$	(0.13	)	$	(0.00	)

Basic weighted average shares outstanding		5,878			5,878

Diluted weighted average shares outstanding		5,878			5,878

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 Statements of Shareholders’ Equity

Three Months Ended May 31, 2021 and 2020 (unaudited)

(in thousands)


	Common Shares*		Share Amount		Additional Paid-in Capital		Retained Earnings			Treasury Stock			Total Shareholders’ Equity
Balance, February 28, 2021		5,878	$	7,293	$	281	$	12,982		$	(16,282	)	$	4,274
Net loss		—		—		—		(745	)		—			(745	)

Balance, May 31, 2021 (unaudited)		5,878	$	7,293	$	281	$	12,237		$	(16,282	)	$	3,529


	Common Shares*		Share Amount		Additional Paid-in Capital		Retained Earnings			Treasury Stock			Total Shareholders’ Equity
Balance, February 29, 2020		5,878	$	7,293	$	281	$	12,170		$	(16,282	)	$	3,462
Net loss		—		—		—		(8	)		—			(8	)

Balance, May 31, 2020 (unaudited)		5,878	$	7,293	$	281	$	12,162		$	(16,282	)	$	3,454

*	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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Video Display Corporation and Subsidiaries

Interim Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)


	Three Months Ended May 31,
	2021			2020
Operating Activities
Net loss	$	(745	)	$	(8	)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation expense		63			60
Amortization of intangible assets		32			43
Provision for doubtful accounts		(6	)		(4	)
Provision for inventory reserve		15			15
Realized/unrealized loss on investments		—			10
Other		4			4
Changes in working capital items:
Accounts receivable		886			655
Inventories		83			456
Prepaid expenses and other assets		(41	)		(68	)
Contract assets		513			(655	)
Customer deposits		(50	)		(619	)
Accounts payable and accrued liabilities		(150	)		(420	)

Net cash provided by (used in) operating activities		604			(531	)

Investing Activities
Capital expenditures		(23	)		(19	)
Purchases of investments		—			(43	)
Proceeds from sale of investments		—			18

Net cash used in investing activities		(23	)		(44	)

Financing Activities
Repayments of notes payable to officers and directors		—			(35	)
Repayments of long-term debt		(14	)		—
Repayments on lease financing		(18	)		—
Proceeds from PPP related loans		—			988
Marginal float borrowings		—			3

Net cash (used in) provided by financing activities		(32	)		956

Net change in cash and cash equivalents		549			381
Cash and cash equivalents, beginning of year		293			844

Cash and cash equivalents, end of period	$	842		$	1,225

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

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Video Display Corporation and Subsidiaries

May 31, 2021

Note 1. – Basis of Presentation of Principles of Consolidation

The accompanying unaudited interim condensed consolidated financial statements include the accounts of Video Display Corporation, Inc. and its subsidiaries (“Video Display,” the “Company,” “we,” or “us”). All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying condensed consolidated balance sheet as of February 28, 2021 has been derived from audited financial statements. The accompanying unaudited condensed consolidated financial statements as of, and for the three months ended, May 31, 2021 and 2020 have been prepared in accordance with (i) accounting principles generally accepted in the U.S. for interim financial information and (ii) the instructions to Form

10-Q

and Rule

10-01

of Regulation

S-X

of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, such statements do not include all of the information and disclosures required by accounting principles generally accepted in the U.S. for a complete presentation of financial statements. In the opinion of management, all adjustments (including those of a normal, recurring nature) considered necessary for a fair presentation have been included. Operating results for the three months ended May 31, 2021 are not necessarily indicative of the results that may be expected for the year ending February 28, 2022. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Video Display’s Annual Report on Form

10-K

for the year ended February 28, 2021 filed with the SEC on May 28, 2021.

Note 2. – Going Concern, Banking & Liquidity

The accompanying unaudited interim condensed consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company reported a net loss and a decrease in working capital for the three month period ending May 31, 2021 primarily due to a decrease in revenues in three of four divisions. The Company did have an increase in liquid assets for the three month period primarily as a result of tight management of its resources. The Company has sustained losses for the last three of five fiscal years and has seen overall a decline in working capital and liquid assets during this five year period. Annual losses over this time are due to a combination of decreasing revenues across certain divisions without a commensurate reduction of expenses. The Company’s working capital and liquid asset position are presented below (in thousands) as of May 31, 2021 and February 28, 2021:


	May 31, 2021		February 28, 2021
Working capital	$	2,942	$	3,601
Liquid assets	$	842	$	293

The Company has increased marketing efforts in its ruggedized displays, TEMPEST products and services and small specialty displays. In addition, the Company has streamlined its operations and is focusing on increasing revenues by executing initiatives such as upgrading its sales and marketing efforts including a more user friendly website, hiring of an experienced Rugged Display Business Development Manager, increasing customer visits and trade shows post pandemic to market all the product lines it sells. The Company was able to increase its fiscal revenue over the prior fiscal year and has been implementing a plan to increase revenues at all the divisions, each structured to the particular division. The Company has expanded its cyber security business by adding an additional test chamber and a new test equipment to provide additional TEMPEST service capabilities and for qualifying TEMPEST products allowing it to increase the business in cyber testing services to supplement the product side of the business. The Company completed the transfer of the remaining CRT operations in Florida to its Lexel Imaging facility in Lexington, KY in order to make room for the new business in its Cocoa facility. This will also reduce expenses in the CRT operation by having that business all under one roof. The Company moved the corporate accounting functions to the Cocoa, Florida location which allows the Company to become more efficient and save money on reducing redundant operations. The plan is to further reduce expenses by closing the Tucker, Georgia facility as soon as the lease expires in 2022. There is no line of credit outstanding or other financing currently in place other than the remaining PPP loans and a $86,000 note payable balance.

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Video Display Corporation and Subsidiaries

May 31, 2021

The ability of the Company to continue as a going concern is dependent upon the success of management’s plans to improve revenues, the operational effectiveness of continuing operations, the procurement of suitable financing, or a combination of these. The uncertainty regarding the potential success of management’s plan create substantial doubt about the ability of the Company to continue as a going concern.

Note 3. – Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In December 2019, the FASB issued ASU

2019-12, Income

Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU

2019-12”),

which simplifies the accounting for income taxes by removing certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new ASU also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates. These changes aim to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing the disclosures. The guidance is effective for the Company beginning on March 1, 2021 and prescribes different transition methods for the various provisions. Effective March 1, 2021, we adopted ASU

2019-12

with no material impact on the Company’s financial statements or related disclosures.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU

2016-13,

Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, including trade receivables. ASU

2016-13

replaces the existing incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. This guidance is effective for annual reporting periods beginning after December 15, 2022 for smaller reporting companies, with early adoption permitted. Entities will apply the amendments using a modified retrospective approach. The Company does not expect the adoption of ASU

2016-13

to have a material impact on its financial statements and related disclosures.

Note 4. – Inventories

Inventories are stated at the lower of cost (first in, first out) or market and consisted of the following (in thousands):


	May 31, 2021			February 28, 2021
Raw materials	$	2,880		$	2,888
Work-in-process		933			1,166
Finished goods		929			771

		4,742			4,825
Reserves for obsolescence		(813	)		(798	)

	$	3,929		$	4,027

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Video Display Corporation and Subsidiaries

May 31, 2021

Note 5. – Paycheck Protection Promissory (“PPP”) Related Loans

On April 13, 2020 our Lexel Imaging subsidiary entered into a Paycheck Protection Promissory Note (the “PPP Loan”) with the Central Bank for $216,200 and on January 27, 2021 entered into a second round PPP Loan for $304,442. On April 23, 2020, Video Display Corporation entered into a $772,000 first round PPP Loan with the Renasant Bank and on February 11, 2021, entered into a second round PPP Loan with Central Bank for $780,112. The PPP Loans were made under, and are subject to the terms and conditions of, the PPP which was established under the CARES Act and is administered by the U.S. Small Business Administration. The terms of the two outstanding loans are five years with maturity dates of January 27, 2026 and February 11, 2026 and they contain a fixed annual interest rate of 1.00%. Payments of principle and interest on the PPP Loans are deferred for the first sixteen months of the term of the PPP Loans until July 27, 2022 and August 11, 2022, respectively. Principle and interest are payable monthly and may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Under the terms of the CARES Act, recipients can apply for and receive forgiveness for all, or a portion of the loans granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs, mortgage interest, rent or utility costs (collectively, “Qualifying Expenses”), and on the maintenance of employee and compensation levels during a certain time period following the funding of the PPP Loans.

The Company believes it has used the proceeds of the PPP Loans for Qualifying Expenses. In fiscal 2021, the Company received forgiveness on the first round $216,200 Lexel Imaging PPP Loan in November 2020 and on the first round $772,000 Video Display PPP Loan in December 2020.

As of May 31, 2021 and February 28, 2021, the Company had a long-term liability of $1,084 thousand related to the second round outstanding PPP Loans on the condensed consolidated balances sheets.

Note 6. – Leases

Operating Leases

The Company leases its office space and manufacturing facilities under operating lease agreements. The base lease terms expire at various dates from 2022 to 2025. While each of the leases include renewal options, the Company has only included the base lease term in its calculation of lease assets and liabilities.

Balance sheet information related to operating leases is as follows (in thousands):


	May 31, 2021
Assets

Operating lease right-of-use assets	$	996

Liabilities

Current portion of operating lease liabilities	$	573
Noncurrent portion of operating lease liabilities		457

Total operating lease liabilities	$	1,030

Operating lease costs are included in Cost of goods sold in the Company’s condensed consolidated statements of operations and totaled approximately $149 thousand for the three months ended May 31, 2021 and $157 thousand for the three months ended May 31, 2020.

Cash paid for amounts included in the measurement of operating lease liabilities was approximately $145 thousand for the three months ended May 31, 2021 and $143 thousand for the three months ended May 31, 2020. The Company did not modify any existing leases or execute any new leases during the three months ended May 31, 2021.

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Video Display Corporation and Subsidiaries

May 31, 2021

Weighted average information associated with the measurement of the Company’s remaining operating lease obligations is as follows:


	May 31, 2021
Weighted average remaining lease term		1.8 years
Weighted average discount rate		6	%

The following table summarizes the maturity of the Company’s operating lease liabilities as of May 31, 2021 (in thousands):


FY2022	$	432
FY2023		263
FY2024		190
FY2025		185

Total operating lease payments		1,070
Less imputed interest		(40	)

Total operating lease liabilities	$	1,030

Included above are leases for manufacturing and warehouse facilities leased from Southeast Metro Savings, LLC and Honeyhill Properties, LLC (entities which are controlled by the Company’s chief executive officer) under operating leases expiring at various dates through 2025. Lease costs under these leases totaled approximately $97 thousand for the three months ended May 31, 2021. Lease costs were also $97 thousand for the three months ended May 31, 2020.

The Company subleases certain of its warehousing space in its Tucker and Kentucky locations. The Tucker sublease expires concurrently with the head lease in March 2022 and the Kentucky lease expires November 30, 2021.

Sublease income and lease income are included in Other, net in the Company’s condensed consolidated statements of operations and totaled approximately $51,000 for the three months ended May 31, 2021 and $90,000 for the three months ended May 31, 2020. Future remaining lease payments expected to be received as of May 31, 2021 are as follows (in thousands):


FY2022	$	138
FY2023		12

Total	$	150

Financing Leases

The Company has one financing lease entered into on November 23, 2020 for Tempest testing equipment for $277,000. The lease expires on December 1, 2023 and the incremental borrowing rate on the lease is 12.5%.

Balance sheet information related to financing lease is as follows (in thousands):


	May 31, 2021
Financing lease right-of-use assets	$	237

Current portion of financing lease liabilities	$	98
Noncurrent portion of financing lease liabilities		124

Total financing lease liabilities	$	222

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Video Display Corporation and Subsidiaries

May 31, 2021

The following table summarizes the maturity of the Company’s finance lease liabilities as of May 31, 2021 (in thousands):


Fiscal Year	Amount
2022	$	78
2023		104
2024		78

Total finance lease payments	$	260
Less imputed interest		(38	)

Total finance lease liabilities	$	222

Note 7 . – Supplemental Cash Flow Information

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


	Three Months Ended May 31,
	2021		2020
Cash paid for:
Interest	$	7	$	—

Non-cash activity:
Note receivable paid directly to officer	$	—	$	55

Note payable to officer	$	—	$	55


Imputed interest expense	$	—	$	4

Imputed interest income	$	—	$	4

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.

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Video Display Corporation and Subsidiaries

May 31, 2021

The following table sets forth the computation of basic and diluted earnings (loss) per share for the three-month periods ended May 31, 2021 and 2020 (in thousands, except per share data):


	Net Loss			Weighted Average Common Shares Outstanding		Loss Per Share
Three months ended May 31, 2021
Basic	$	(745	)		5,878	$	(0.13	)
Effect of dilution:
Options		—			—		—

Diluted	$	(745	)		5,878	$	(0.13	)


Three months ended May 31, 2020
Basic	$	(8	)		5,878	$	(0.00	)
Effect of dilution:
Options		—			—		—

Diluted	$	(8	)		5,878	$	(0.00	)

Stock options, debentures, and other liabilities convertible into 200,000 shares, of the Company’s common stock were anti-dilutive and, therefore, were excluded from the May 31, 2021 and 2020 diluted earnings (loss) per share calculations. For the three-month period ended May 31, 2021 and May 31, 2020, there was no expense related to share-based compensation as all options were fully vested. No options were granted for the three month period ending May 31, 2021 or for the three month period ended May 31, 2020.

Stock Repurchase Program

The Company has a stock repurchase program, pursuant to which it had been authorized to repurchase up to 2,632,500 shares of the Company’s common stock in the open market. On January 20, 2014, the Board of Directors of the Company approved a

one-time

continuation of the stock repurchase program, and authorized the Company to repurchase up to 1,500,000 additional shares of the Company’s common stock in the open market. There is no minimum number of shares required to be repurchased under the program.

For the quarter ending May 31, 2021 and May 31, 2020, the Company did not purchase any shares of the Video Display Corporation stock. Under the Company’s stock repurchase program, an additional 490,186 shares remain authorized to be repurchased by the Company at May 31, 2021.

Note 9. – Income Taxes

Due to the Company’s overall and historical net loss position, no income tax expense was reported for the three month period ending May 31, 2021 and May 31, 2020. 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. The Company is not currently party to any legal proceedings the result of which management believes is likely to have a material adverse impact on its business, financial position, results of operations or cash flows.

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Video Display Corporation and Subsidiaries

May 31, 2021

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the attached unaudited interim condensed consolidated financial statements and with the Company’s 2021 Annual Report to Shareholders, which included audited consolidated financial statements and notes thereto as of and for the fiscal year ended February 28, 2021, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

The Company manufactures and distributes a wide range of display devices, encompassing, among others, industrial, military, medical, and simulation display solutions. The Company is comprised of one segment - the manufacturing and distribution of displays and display components. The Company is organized into four 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.

•

Other Computer Products –

offers a variety of keyboard products.

During fiscal 2022, management of the Company is focusing key resources on strategic efforts to grow its business through internal sales of the Company’s more profitable product lines and reduce expenses in all areas of the business to bring its cost structure in line with the current size of the business. Challenges facing the Company during these efforts include:

Liquidity -

The accompanying unaudited interim condensed consolidated financial statements were prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company reported a net loss and a decrease in working capital for the three month period ending May 31, 2021 primarily due to a decrease in revenues in three of the four divisions. The Company did have an increase in liquid assets for the three month period primarily as a result of tight management of its resources. The Company has sustained losses for the last three of five fiscal years and has seen overall a decline in working capital and liquid assets during this five year period. Annual losses over this time are due to a combination of decreasing revenues across certain divisions without a commensurate reduction of expenses. The Company’s working capital and liquid asset position are presented below (in thousands) as of May 31, 2021 and February 28, 2021:


	May 31, 2021		February 28, 2021
Working capital	$	2,942	$	3,601
Liquid assets	$	842	$	293

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Video Display Corporation and Subsidiaries

May 31, 2021

executing initiatives such as upgrading its sales and marketing efforts including a more user friendly website, hiring of an experienced Rugged Display Business Development Manager, increasing customer visits and trade shows post pandemic to market all the product lines it sells. The Company was able to increase its fiscal revenue over the prior fiscal year and has been implementing a plan to increase revenues at all the divisions, each structured to the particular division. The Company has expanded its cyber security business by adding an additional test chamber and a new test equipment to provide additional TEMPEST service capabilities and for qualifying TEMPEST products allowing it to increase the business in cyber testing services to supplement the product side of the business. The Company completed the transfer of the remaining CRT operations in Florida to its Lexel Imaging facility in Lexington, KY in order to make room for the new business in its Cocoa facility. This will also reduce expenses in the CRT operation by having that business all under one roof. The Company moved the corporate accounting functions to the Cocoa, Florida location which allows the Company to become more efficient and save money on reducing redundant operations. The plan is to further reduce expenses by closing the Tucker, Georgia facility as soon as the lease expires in 2022. There is no line of credit outstanding or other financing currently in place other than the remaining PPP loans and a $86,000 note payable balance.

Inventory management

– The Company’s business units utilize different inventory components than the divisions have in the past. The Company has a 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 May 31, 2021 and February 28, 2021 are adequate.

Impact of

COVID-19

– The Company has been actively monitoring the novel

coronavirus, or COVID-19, situation and

its impact globally. Financial results for the three months ended May 31, 2021 and 2020 have been

impacted by COVID-19 due to

delayed orders and/or the fulfillment of the related orders. However, the Company currently does not expect any material impact on our financial results for the remainder of fiscal 2022. Management continues to operate normally with the exception of enabling employees to work from home and abiding by travel restrictions issued by federal and local governments.

If the COVID-19 pandemic continues,

the Company may experience other disruptions that could severely impact the business, results of operations and prospects.

Results of Operations

The following table sets forth, for the three months ended May 31, 2021 and 2020, the percentages that selected items in the Interim Condensed Consolidated Statements of Operations bear to total sales (amounts in thousands):


	Three Months Ended May 31
	2021					2020
Net Sales	Amount		%			Amount		%
Simulation and Training (VDC Display Systems)		1,011		54.4	%		1,801		48.6	%
Data Display CRT (Lexel and Data Display)		232		12.5			762		20.6
Cyber Secure Products (AYON Cyber Security)		204		11.0			865		23.3
Other Computer Products (Unicomp)		410		22.1			277		7.5

Total net sales		1,857		100.0	%		3,705		100.0	%
Costs and expenses
Cost of goods sold		1,490		80.2	%		2,727		73.6	%
Selling and delivery		158		8.5			206		5.6
General and administrative		993		53.5			997		26.9

		2,641		142.2	%		3,930		106.1	%

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Video Display Corporation and Subsidiaries

May 31, 2021


Operating loss	(784	)	(42.2	)%	(225	)	(6.1	)%
Interest (expense) income, net	(10	)	(0.5	)%	(15	)	(0.4	)%
Investment (loss) gains, net	—		—		(10	)	(0.3	)
Other income, net	49		2.6		242		6.6

Loss before income taxes	(745	)	(40.1	)%	(8	)	(0.2	)%
Income tax expense	—		—		—		—

Net loss	(745	)	(40.1	)%	(8	)	(0.2	)%

Net sales

Consolidated net sales decreased 49.9% for the three months ended May 31, 2021 compared to the three months ended May 31, 2020. The Display Systems division decreased 43.8% for the quarter or $0.8 million, due primarily to overall decrease in activity and delayed installations for video walls and simulators. The customized displays business also had some large orders delayed until our next quarter. The Company’s AYON Cyber Security division decreased 76.5% for the quarter or $0.7 million compared to last year’s same quarter. The division has TEMPEST service business, but the products area of the business has seen a large decrease. The division’s engineers are working on new products for the fall bidding season with the government and have developed and demonstrated other products to government agencies. We are waiting for their approval of the demos to start receiving orders. The Data Display division had a decrease of 69.5% due to delays in ordering because of COVID of a specialty product sold through its distribution channels, ultimately going to overseas customers. The Data division is expecting additional orders for the specialty product and should have steady business driven by replacement CRTs for simulators, medical CRTs and phosphor coating business improvements. The keyboard division had an increase in sales of 47.9%, due to the launch of their new line up of keyboards and expects sales to stay strong for the remaining three quarters of the year. All divisions have experienced some form of delay in new orders from customers due to the pandemic, but there are signs that businesses are finding ways to move forward.

Gross margins

Consolidated gross margins were decreased both as a percentage to sales (19.8% to 26.4%) and actual dollars ($367 thousand to $978 thousand) for the three months ended May 31, 2021 compared to the three months ended May 31, 2020.

The two Florida divisions showed decreases in both their gross margin percentage to sales and in actual dollars. AYON Cyber Security gross margin percentage was 11.8% compared to 20.6% and the gross margin dollars were $24 thousand compared to $178 thousand for the three months ended May 31, 2021 compared to the three months ended May 31, 2020. VDC Display Systems gross margin percentage was 26.7% compared 31.8% and the gross margin dollars were $270 thousand compared to $573 thousand for the three months ended May 31, 2021 compared to the three months ended May 31, 2020.

The Data Display division had a negative gross margin of $103 thousand or a negative 44.3% compared to a positive gross margin of $106 thousand and a gross margin of 14.0% for the three months ended May 31, 2021 and May 31, 2020 respectively. The keyboard division, Unicomp, had $176 thousand of gross margin dollars or 43.0% to sales for the three months ending May 31, 2021 compared to $120 thousand or 43.5% for the three months ending May 31, 2020.

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Video Display Corporation and Subsidiaries

May 31, 2021

Operating expenses

Operating expenses decreased by 4.3% or $51 thousand for the three months ended May 31, 2021 compared to the three months ended May 31, 2020. The decrease was due primarily to the decreased costs in selling expenses. The Company is focusing on reducing costs while increasing the sales effort. The Company expects to continue to control costs while increasing revenues in tempest services, specialized displays and ruggedized displays.

Interest expense

Interest expense was $10 thousand for the quarter ended May 31, 2021. The interest expense was on the lease of TEMPEST equipment and the PPP loans. Interest expense was $15 thousand for the quarter ended May 31, 2020 and related to interest expense on a note payable to the CEO.

Other Income/ expense

For the three months ended May 31, 2021, the Company earned $51 thousand in rental income with $2 thousand in other expense for commissions on the rentals. For the three months ended May 31, 2020, the Company earned $148 thousand in royalty income, $90 in rental income, $4 thousand in the sale of discontinued scrap items and had an investment loss of $10 thousand.

Income taxes

Liquidity and Capital Resources


	May 31, 2021		February 28, 2021
Working capital	$	2,942	$	3,601
Liquid assets	$	842	$	293

Management continues to implement plans to improve liquidity and to increase revenues at all divisions. The ability of the Company to continue as a going concern is dependent upon the success of management’s plans to improve revenues, the operational effectiveness of continuing operations, the procurement of suitable financing, or a combination of these. The uncertainty regarding the potential success of management’s plan create substantial doubt about the ability of the Company to continue as a going concern.

Cash provided by operations for the three months ended May 31, 2021 was $0.6 million. Adjustments to net loss of $0.7 million were $0.1 million for depreciation and amortization. Changes in working capital provided $1.2 million,

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Video Display Corporation and Subsidiaries

May 31, 2021

primarily $0.9 million from accounts receivable and $0.5 million from the change in contract assets offset by $0.2 million change in accounts payable and accrued liabilities. Cash used by operations for the three months ended May 31, 2020 was $0.5 million. Adjustments to net loss were $0.1 million for

non-cash

depreciation and amortization charges. Changes in working capital used $0.6 million, primarily due to cash provided by decreases in accounts receivable and inventories of $1.1 million in aggregate offset by an increase in contract assets ($655 thousand) and a decrease in customer deposits and accounts payable and accrued liabilities aggregating a use of $1.0 million.

Investing activities used $23 thousand for the period ended May 31, 2021 for capital equipment. There was also minimal investing activities for the three months ended May 31, 2020. The Company used $19 thousand on capital assets expenditures and $43 thousand on trading security purchases offset with $18 received from sale of investments.

Financing activities used $32 thousand in the period ended May 31, 2021 for payment of debt and lease payments. Financing activities provided $1.0 million for the three months ended May 31, 2020 resulting from $1.0 million proceeds received from the PPP Loan discussed in Note 5 of the interim condensed consolidated financial statements marginally offset by repayment of $35 thousand in related party loans.

The Company has a stock repurchase program, pursuant to which it has been authorized to repurchase up to 2,632,500 shares of the Company’s common stock in the open market. On January 20, 2014, the Board of Directors of the Company approved a

one-time

continuation of the stock repurchase program, and authorized the Company to repurchase up to 1,500,000 additional shares of the Company’s common stock on the open market, depending on the market price of the shares. There is no minimum number of shares required to be repurchased under the program.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon the Company’s interim condensed consolidated financial statements. These interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the interim condensed consolidated financial statements and related notes. The accounting policies that may involve a higher degree of judgments, estimates, and complexity include reserves on inventories, revenue recognition, and the sufficiency of the valuation reserve related to deferred tax assets. The Company uses the following methods and assumptions in determining its estimates:

Reserves on Inventories

Reserves on inventories result in a charge to operations when the estimated net realizable value declines below cost. Management regularly reviews the Company’s investment in inventories for declines in value and establishes reserves when it is apparent that the expected net realizable value of the inventory falls below its carrying amount. Management reviews inventory levels on a quarterly basis. Such reviews include observations of product development trends of the original equipment manufacturers, new products being marketed, and technological advances relative to the product capabilities of the Company’s existing inventories. Management believes its inventory reserves at May 31, 2021 and February 28, 2021 are adequate.

Revenue Recognition

We recognize revenue when we transfer control of the promised products or services to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services. We derive our revenue primarily from sales of simulation and video wall systems, cyber secure products, data displays, and keyboards. We exclude sales and usage-based taxes from revenue.

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Video Display Corporation and Subsidiaries

May 31, 2021

Our simulation and video wall systems are custom-built (using commercial

off-the-shelf

products) to customer specifications under fixed price contracts. Judgment is required to determine whether each product and service is considered to be a distinct performance obligation that should be accounted for separately under the contract. Generally, these contracts contain one performance obligation (the installation of a fully functional system). We recognize revenue for these systems over time as control is transferred based on labor hours incurred on each project.

We recognize revenue related to our cyber secure products, data displays, and keyboards at a point in time when control is transferred to the customer (generally upon shipment of the product to the customer).

Timing of invoicing to customers may differ from timing of revenue recognition; however, our contracts do not include a significant financing component as substantially all of our invoices have terms of 30 days or less. We are applying the practical expedient to exclude from consideration any contracts with payment terms of one year or less and we never offer terms extending beyond one year.

Other Loss Contingencies

Other loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. Disclosure is required when there is a reasonable possibility that the ultimate loss will exceed the recorded provision. Contingent liabilities are often resolved over long time periods. Estimating probable losses requires analysis of multiple factors that often depend on judgments about potential actions by third parties.

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 May 31, 2021, the Company has established a valuation allowance of $5.2 million on the Company’s 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 Company’s tax positions and tax benefits, which may require periodic adjustments. At May 31, 2021, the Company did not record any liabilities for uncertain tax positions.

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Video Display Corporation and Subsidiaries

May 31, 2021

Forward-Looking Information and Risk Factors

This report contains forward-looking statements and information that is based on management’s beliefs, as well as assumptions made by, and information currently available to management. When used in this document, the words “anticipate,” “believe,” “estimate,” “intends,” “will,” and “expect” and similar expressions are intended to identify forward-looking statements. Such statements involve a number of risks and uncertainties. These risks and uncertainties, which are included under Part I, Item 1A. Risk Factors in the Company’s Annual Report on Form

10-K

for the year ended February 28, 2021 could cause actual results to differ materially.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company’s primary market risks include changes in technology. The Company operates in an industry which is continuously changing. Failure to adapt to the changes could have a detrimental effect on the Company.

ITEM 4. CONTROLS AND PROCEDURES

Our disclosure controls and procedures (as defined in Exchange 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 May 31, 2021. 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 May 31, 2021.

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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May 31, 2021

PART II

Item 1.

Legal Proceedings

None.

Item 1A.

Risk Factors

Information regarding risk factors appears under the caption Forward-Looking Information 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, 2021. 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


Exhibit Number		Exhibit Description

	3(a)	Articles of Incorporation of the Company (incorporated by reference to Exhibit 3A to the Company’s Registration Statement on Form S-18 filed January 15, 1985).(P)

	3(b)	By-Laws of the Company (incorporated by reference to Exhibit 3B to the Company’s Registration Statement on Form S-18 filed January 15, 1985).(P)

	10(a)	Lease dated April 1, 2015 by and between Registrant (Lessee) and Ronald D. Ordway (Lessor) with respect to premises located at 1868 Tucker Industrial Road, Tucker, Georgia. (incorporated by reference to Exhibit 10(c) to the Company’s 2015 Annual Report on Form 10-K.)

	10(b)	Lease dated February 19, 2015 by and between Registrant (Lessee) and Ordway Properties LLC (Lessor) with respect to premises located at 5155 King Street, Cocoa, FL. (incorporated by reference to Exhibit 10(g) to the Company’s 2015 Annual Report on Form 10-K.)

	10(c)	Video Display Corporation 2006 Stock Incentive Plan. (incorporated by reference to Appendix A to the Company’s 2006 Proxy Statement on Schedule 14A)

	31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	101.INS	XBRL Instance Document

	101.SCH	XBRL Taxonomy Extension Schema Document

	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

	101.LAB	XBRL Taxonomy Extension Label Linkbase Document

	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

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

July 12, 2021	By:	/s/ Ronald D. Ordway
		Ronald D. Ordway
		Chief Executive Officer

July 12, 2021	By:	/s/ Gregory L. Osborn
		Gregory L. Osborn
		Chief Financial Officer